In their search for uncorrelated returns, institutional investors are increasingly looking to insurance-linked strategies (ILS) as a solution. As one of only a small number of alternative asset managers currently offering ILS investment solutions, we have been able to provide access to this rapidly developing asset class. With ILS, investors have been able to achieve the combination of stable, attractive returns with low correlation to other asset classes. This is because ILS returns are based on the possible occurrence of a catastrophic insurance event − like a hurricane in the southeastern United States, mass flooding in Europe or an earthquake in Japan – so they have little correlation with equities, bonds and other asset classes. In fact, ILS have among the lowest correlation to traditional asset classes of any investment type.

Diversification across geography and peril, managed with a constant-risk approach

When investing with LGT ILS, the diversification impact goes beyond the addition of an uncorrelated asset class because we also diversify our portfolios across different kinds of weather-related perils. While investors have long had access to the catastrophe ("cat") bond market, they have had to make do with cat bonds' heavy exposure to US wind perils. LGT ILS has addressed this historic bias by spreading the risk in its portfolios geographically (by including Europe, Southeast Asia, Japan and Australia), across different peril categories (such as earthquakes, typhoons and cyclones), as well as across different trigger types and default probabilities. As a result, our investors have benefited from uncorrelated risk exposures across the full set of possible catastrophe risks, resulting in well diversified portfolios, which are optimized to mitigate tail risk.

Investors also have the ability to choose their preferred level of risk, with three different strategies available. Our Conservative, Balanced and Enhanced strategies provide three distinct levels of risk and return, depending on the investor's return requirements and appetite for risk. Each strategy has a specific risk budget defined by its maximum expected loss and maximum exposure per peril. This constant-risk approach provides a high level of transparency to investors, as they are exposed to the same level of risk over time.

A strong, experienced team with a long track record

LGT ILS is further distinguished by the strength of its team and the length of their track record. The team's four founding partners come from the reinsurance industry, where they mastered the complex field of catastrophe risk management, with an average of 16 years of experience in the field. They are part of a larger team of 26 professionals from a wide range of backgrounds, who together have a large network for sourcing investments and securing relationships with counterparties. As one of the oldest teams in the industry, its track record extends back to 2005, and it has delivered positive returns for more than 80% of the months the team has been investing.