Insurance-linked Securities

Herbert Biryomumaisho, has more than 10 years of experience in financial advisory services, account management, and accounting. One of Herbert Biryomumaisho’s many tasks as an accountant involves working with insurance-linked securities. Insurance-linked securities (ILS) are a collaboration between the capital markets and the insurance industry.

The market is made up of a few types of ILS funds. The most common ILS is the catastrophe bond, more commonly called the CAT bond. These securities typically have a three-to-five year life span and are traded conventionally. CAT bonds comprise only one-third of the entire market. The other two-thirds of the ILS consists of 12-month, non-tradable contracts described as “over-the-counter.” These bonds provide investors with more latitude in that they can cover a variety of risk, including marine, aviation, and specialty.

The way an ILS fund works is that it purchases insurance against incurring a loss as a result of some event. These ILS protection companies are insurance or reinsurance companies trying to reduce the amount of risk. Investors receive interest payments from the premium and the money market fund.

The primary benefit of the security is that the ILS is not exposed to the credit risk of an issuing body. The reason risk is reduced is because a part of it is passed onto the protection seller (usually an investment fund) through a reinsurance contract, which is backed through collateral. In the end, an insurance risk is transformed into an investment.

IFRS - A Common Language for International Financial Reporting

 As an account manager for an international accounting firm, Herbert Biryomumaisho focuses on tracking the performance of reinsurance companies. Herbert Biryomumaisho has extensive knowledge of the International Financial Reporting Standards (IFRS).

Placed in effect in 2005 in the European Union, the IFRS governs financial statements in 120 countries. The goal of the IFRS is to provide consistently formatted information so accountants in one country can evaluate the finances of companies in another.

Established by the International Accounting Standards Board, the IFRS creates a common accounting language that allows for informed business decisions. It serves as a template for data such as balance sheets, profit and loss statements, cash flow, and changes in equity value. It also mandates open disclosure of accounting practices. It has been found that such transparency encourages investors to place their capital in IFRS-compliant nations.

The United States and Canada do not subscribe to these standards; instead, they use the older Generally Accepted Accounting Principles (GAAP). IFRS proponents claim that global adoption would eliminate the necessity of filing duplicate accounting statements.