Insurance-linked securities, or ILS, are essentially financial instruments which are sold to investors whose value is affected by an insured loss event. As such the term insurance-linked security encompasses catastrophe bonds and other forms of risk-linked securitization.
Insurance-linked securities are generally thought to have little to no correlation with the wider financial markets as their value is linked to non-financial risks such as natural disasters, longevity risk or life insurance mortality.
As securities, insurance-linked securities can be and are traded among investors and on the secondary-market. They allow insurers to offload risk and raise capital