Industry Loss Warranty (ILW):
Industry Loss Warranties (ILWs) , often referred to as ILWs, are a type of reinsurance or derivative contract through which one party will purchase protection based on the total loss arising from a catastrophic event to the entire insurance industry rather than their own losses. For example, the buyer of a "$100mm limit US Wind ILW attaching at $20bn" will pay an upfront premium to a protection writer (generally a reinsurer but sometimes a hedge fund) and in return will receive $100mm if total losses to the insurance industry from a single US hurricane exceed $20bn. The industry loss ($20bn in this case) is often referred to as the "trigger" and is reported by an independent third party after an event has occurred. The amount of protection offered by the contract ($100mm in this case) is referred to as the "limit." ILWs could also be constructed based on an index not linked to insurance industry losses, such as windspeed or earthquake magnitude and location.