Efficiently structured insurance-linked securities (ILS) transactions are playing a pivotal role in reducing capital costs for re/insurers, according to risk capital and reinsurance solutions broking firm Augment Risk.
In a recent commentary, the firm asserts that by leveraging the evolving capabilities of the ILS market, insurers can reduce their cost of capital while enhancing long-term financial performance and resilience
“Moreover, ILS can often deliver capital at a lower cost compared with traditional reinsurers,” Augment Risk said.
“The cost of capital is typically represented by a return on equity, which can range from mid to high teens. By structuring deals efficiently, ILS transactions can potentially lower the cost of capital from between 5% and 7%. Even a modest reduction in capital costs can lead to significant improvements in the insurer’s financial performance over time,” the firm continued.
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