Insurance Linked Securities (ILS)

Insurance Linked Securities (ILS) are financial instruments that transfer insurance risk from insurers to investors. When a company faces a potential large loss, such as from a natural disaster, it can use ILS to raise funds by selling these securities. Investors buy ILS to receive returns that are linked to the occurrence of specific insured events. If the event happens, investors may lose part or all of their investment; if not, they earn interest. ILS help insurers manage risk better while providing investors with a way to diversify their portfolios with non-traditional assets.