Vesttoo's ILS Offering Compared To Other Alternatives

Investors today are well-aware of the benefits alternative assets can bring to their portfolios. The most well-known form of insurance-linked security (ILS) are cat bonds, instruments which transfer a portion of natural catastrophe risk exposure from insurers to the capital markets. However, the ILS asset class itself should not be thought of as synonymous with cat bonds; the non-catastrophe segment of the ILS market displays noticeable different characteristics, and therefore appeals to investors on very different grounds than cat bonds.
June 08, 2023
Vesttoo's ILS Offering Compared To Other Alternatives
Vesttoo's ILS Offering Compared To Other Alternatives

In Vesttoo’s most recent white paper we put the differences between cat and non-cat ILS under the microscope, as well as situating ILS in general in the context of other comparable alternative assets. The goal was to form an objective comparison of how ILS compares to other alternative debt-like instruments in terms of how the asset classes considered respond to macroeconomic issues including inflation, corporate profitability, interest rate changes, and default risk.

Arguably there are three key reasons institutional allocators have tended to increase their exposure to alternatives over the past 20 years or so.

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First and foremost, investors are interested in alternatives because they have been able to generate strong long-term growth over recent decades. Importantly, this has been far from consistent, but today fewer allocators would question whether alternatives have their place alongside equities and fixed-income assets in balanced portfolios.

Secondly, alternatives often represent a chance to access returns which have low correlation to movements in public markets. In this way they can potentially bring stability to portfolios across market cycles. 

Lastly, alternatives can offer a so-called ‘illiquidity premium’ due to the limited secondary trading they offer in comparison to listed equities or bonds.

If you are interested to hear precisely how ILS compares to other alternative debt assets like collateralized loan obligations (CLO) and mortgage-backed securities (MBS), follow this link to download our white paper.

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