Insurance Linked Securities (ILS) represent the securitisation of insurance risk by providing investors risk capital to (re) insurers and participating in (re)insurance premiums.
• Relative to other asset classes:
– ILS has demonstrated low historical correlations with traditional markets.
• Within the asset class:
– between different risks and geographies, for example there is no correlation between a hurricane in US and an earthquake in Japan;
– within a particular risk, diversification by investment structure and trigger type, for example quota share versus excess of loss; per event versus aggregate; nature of losses covered (e.g. commercial versus residential).
• Across sub-asset classes:
– Non-Life: across perils, across geographies, across types of transactions.
– Life: across mortality, longevity & morbidity risks.
Attractive Risk-Adjusted Returns
ILS provides investors with access to pure insurance risk (versus buying insurance company stock and assuming market risk of an insurer’s own balance sheet). Insurance risk demonstrates positive mean return potential for investors.
ILS investments in public and private non-life typically carry a one to three-year term.