Jurisdiction(s):
European Union

EU Solvency II: Insurance‑Linked Securities—SPV/MSPV authorisation, mandatory contract terms, governance, investment, solvency and reporting requirements

Published by a LexisNexis EU Law expert

Practice notes

What are insurance-linked securities?

Insurance-linked securities (ILS) serve as a risk management tool for insurers and reinsurers. Insurers typically handle their risk exposure by arranging structures whereby:

the insurer keeps its primary obligation to its policy holders, while
another entity
- receives sums reflecting a portion of the premia paid by policy holders to the insurer, and
- must pay the insurer amounts mirroring an agreed share of the losses the insurer suffers

Under this structure, amounts linked to premia and to covered losses are apportioned to an agreed ratio, while the insurer’s duties to policy holders remain unaffected. This practice is also known as risk mitigation or risk transfer. The predominant method of insurance risk management is reinsurance, in which the insurer concludes a reinsurance contract with a specialist reinsurance undertaking. A reinsurer may, in turn, reinsure some or all of the risk it has accepted. That step is termed ‘retrocession’ rather than reinsurance, and the reinsurer taking on a reinsured risk is the ‘retrocessionnaire’.

ILS represent a variant of risk management whereby:

an insurance or reinsurance company (the cedant) enters a risk-transfer agreement with a special purpose vehicle (SPV), under which the SPV takes on the transferred risk in exchange for premia...

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Web page updated on 21/05/2026

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