ILS Overview

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.


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