Insurance Linked Securities

Insurance-Linked Securities (ILS) are financial instruments that allow investors to gain exposure to insurance risks, such as natural disasters. They are created by insurers or reinsurers who transfer some of their risk to the capital markets. Investors buy these securities and, in return, receive payments that can vary based on specific insurance events, like hurricanes or earthquakes. If no triggering event occurs, investors earn a steady return; if one does, they may lose part or all of their investment. ILS help insurers manage risk while offering investors an opportunity for diversification and potentially higher returns.