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The Attractiveness of Insurance-Linked Securities for Investors

Elementum’s John DeCaro talks to the Swiss publication, Le Temps, about ILS as an asset class and why investors should be interested. Originally published in French in the May 2017 issue of Switzerland’s Le Temps Magazine – “L’attrait des Insurance-Linked-Securities (ILS) pour les investisseurs.”

ILS Overview

Insurance-Linked Securities (“ILS”) are securities and derivatives that transfer catastrophic natural event risk from insurers and reinsurers to capital markets investors. Fundamentally, the market is predicated on investors assuming losses from natural catastrophes on behalf of insurance companies, in exchange for a risk premium. The ILS market emerged in the mid-1990s, following Hurricane Andrew and the earthquake in Northridge, CA. These events awoke the insurance industry to the significant financial impact that large natural catastrophes could have, especially with respect to the inadequacy and inefficiency associated with using on-balance sheet capital to fund such risks. Some of the investors that are currently allocating to ILS include pension funds, insurance companies, banks, asset managers and hedge funds. We believe that many of these sophisticated institutional investors may be attracted to ILS for two reasons: the absolute and risk-adjusted return potential and the diversification benefits of the asset class.

Continued

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