Insurance-linked securities: cat bond, cat fight
In hindsight, 2013 may be seen as the year in which insurance-linked securities (ILSs) became truly mainstream. ILS products such as catastrophe bonds, industry loss warranties (ILWs) and collateralised reinsurance became more popular and, importantly, products that traditional P&C reinsurers started to actively engage with and underwrite.
ILS products are seen by investors as a simple and uncorrelated asset class yielding reliable returns, with the perceived advantage that their simplicity eliminates the risk of disputes. External reporting indices allow the parties to know precisely when a policy is triggered and for how much.
But is it really that simple? Disputes in the ILS arena are more prevalent than one might think. Many ILS contracts contain confidential arbitration provisions meaning that disputes are often kept out of the press…
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Mr Justice Field, sitting in the Commercial Court, has had to consider the meaning of the phrase ‘proper and business-like’.
Swallowfalls v Monaco Yachting provides further support for the construction of contracts in the manner most consistent with ‘commercial common sense’.