Insurance-linked securities on anvil to diversify risks

To diversify insurance risk beyond traditional reinsurance, the International Financial Services Centres Authority (IFSCA) is working to set up special purpose vehicles (SPVs) that would issue insurance-linked securities such as catastrophe bonds, its chairman said Monday.

The IFSCA would soon approach the government for such SPVs, K Rajaraman said on the sidelines of the Global Conference of Actuaries in Mumbai.

Under the proposed framework, risk will not be limited to reinsurers alone. "In the new financial order, a new set of people have come who are willing to buy that risk - private equity firms and other investors who want to diversify their portfolios," he said.


If insurers are able to enlarge the number of people who participate in risk-sharing, the insurance industry becomes more stable and more sustainable, especially when an event happens. To operationalise catastrophe bonds and similar instruments, the regulator will need SPV structures.