Insurance-linked securities (ILS) provide a way for institutional investors to deploy capital capacity directly into the global property/catastrophe reinsurance market.  Through instruments such as catastrophe bonds and collateralized reinsurance (or Private ILS), portfolios are designed to capture natural event risk premia that is greater than the estimated long-term event risk of the portfolio holdings.  At the highest level, the ILS market creates opportunities for diversified, uncorrelated returns compared to broader and more traditional asset classes.  

ILS portfolios receive premium income in exchange for assuming defined catastrophe risks.  Should a covered event satisfy specific contractual triggers, the underlying collateral (or principal) is drawn upon to fulfill reinsurance obligations.  This mechanism is designed to directly link portfolio performance to physical catastrophe occurrences that are included in the portfolio rather than capital market movements.

As a result, ILS can offer institutional portfolios a diversifying allocation opportunity that has historically been decoupled from traditional financial market volatility.