Insurance-Linked Securities (ILS)
Financial instruments whose returns are linked to insurance or reinsurance losses rather than financial markets.
Insurance-linked securities (ILS) is the umbrella term for financial instruments whose returns are tied to insurance or reinsurance losses, not to the performance of equity or credit markets. This low correlation to traditional assets makes ILS a genuine diversifier in institutional portfolios.
The ILS asset class includes catastrophe bonds (the most liquid form), collateralised reinsurance, sidecars, and industry loss warranties (ILWs). ILS capital now accounts for approximately 15–20% of global reinsurance capacity, with the highest concentration in peak catastrophe zones: US hurricane, US earthquake, and Japan earthquake.
Dedicated ILS fund managers — including Nephila Capital, Twelve Capital, LGT ILS Partners, and Securis — manage the majority of third-party ILS capital.
Example usage
“The ILS market absorbed $12bn of new capital following the 2017 hurricane season, demonstrating its role as a capacity provider in hard markets.”
Frequently asked questions
What is Insurance-Linked Securities (ILS)?
Financial instruments whose returns are linked to insurance or reinsurance losses rather than financial markets. Insurance-linked securities (ILS) is the umbrella term for financial instruments whose returns are tied to insurance or reinsurance losses, not to the performance of equity or credit markets. This low correlation to traditional assets makes ILS a genuine diversifier in institutional portfolios.
How is Insurance-Linked Securities (ILS) used in practice?
The ILS market absorbed $12bn of new capital following the 2017 hurricane season, demonstrating its role as a capacity provider in hard markets.
Related terms
More Insurance-Linked Securities terms