Insurance linked securities (ILS) also known as catastrophe or cat bonds are a transfer of insurance risk to the capital markets typically by insurance or reinsurance companies. The performance of ILS depends on the occurrence respectively non-occurrence of an insured event. ILS show a low correlation with traditional asset classes and other alternative investment. ILS are typically not exposed to duration risk or interest rate risk since their return consists of a variable interest rate component plus an insurance premium for the risk assumed. Moreover they protect investors against inflation. Typically the ILS funds diversify their exposure across different perils such as natural catastrophe (wind, earthquake), man made risk and across different geographies US, Europe and Asia.
Two years after the successful launch of the ‘Eurekahedge ILS Advisers Index’; the first index tracking the performance of 32 funds investing exclusively in insurance risk, Eurekahedge together with ILS Advisers announced the release of a USD hedged version of the benchmark.
The index was incepted in December 2005 and has returned 71.27% through January 2014. The index has an annualised return of 6.88% and an extremely low volatility, producing one of the highest Sharpe ratios of all of Eurekahedge indices at 2.17.
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