ILS feature several characteristics that make them attractive investment vehicles.

• Low correlation: Insurance exposure to natural catastrophic events are (mostly) uncorrelated to financial markets.
• Quantitative approach to understanding risk/return: Third party vendors provide technically robust models that pair well with a scientific basis of risk selection and understanding of natural perils.

Hiscox Re ILS is able to pair the above with the unique characteristics of the reinsurance market:

• Inefficient markets: Relationship driven, illiquid transactions trading on a few dates per year result in limited commoditization of price and risk.
• High barriers to entry: Counterparties favour trading with a small number of highly rated reinsurers with an established track record. Margins vary considerably.

There are three main types of ILS.

• Catastrophe bonds: Securities traded on capital markets anchored to natural catastrophe and extreme mortality/morbidity events.
• Industry Loss Warranties: Contracts that pay out when a given industry event exceeds a predetermined total loss.

• Collateralized reinsurance: Private transactions through which investors can access the traditional reinsurance market.

Hiscox Re ILS currently focuses on traditional and collateralized reinsurance.