Insurance Linked Securities [ILS], are essentially financial instruments sold to investors whose value is affected by an insured loss event. The term 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 are traded among investors on the secondary-market allowing insurers to offload risk and raise capital and also allowing life insurers to release the value in their policies by packaging them up and issuing them as asset-backed notes.
[source: Artemis]
ILS transaction