Fitch Ratings has completed its periodic review and published its criteria report for rating insurance-linked securities (ILS). The criteria report is titled 'Insurance-Linked Securities' and replaces the previous version dated August 2011. This update will not affect any ILS ratings that are currently provided.
The report provides the global methodology for rating insurance-linked securities, as well as the obligations and/or counterparty risk of special-purpose (re)insurers designed to isolate and transfer specific insurance risks or products to investors or other third parties. Usually these risks are 'low frequency, high severity' events, or incorporate remote triggers.
Generally, ILS serves as either a risk transfer or a risk financing vehicle for insurance or reinsurance companies. Examples of transferred perils include natural catastrophes, pandemics or extreme mortality, and medical loss ratios. Risk financings include embedded value of unit-linked annuities, disability income policies or life insurance contracts.
This criteria melds and references the analytical process included in structured finance criteria and insurance criteria or a combination of both. Periodic updates, such as this one, are intended to reflect any material changes in legal structures and/or insurance risks in the sector.
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