Higher risk-free rate boosts ILS investment returns



The steady rise in interest rates of instruments such as U.S. Treasuries, that are typically used as collateral for insurance-linked securities (ILS) and collateralized reinsurance investments, have now served to boost returns for ILS investors in 2019.

U.S. Treasuries have seen their interest rates rise steadily over the last two years, which supports better returns for ILS investors given the floating nature of ILS instruments such as catastrophe bonds and other reinsurance-linked assets.

U.S. Treasuries fell to as low as a 0.20% return back in 2016, but steady increases helped by U.S. interest rate rises mean that they currently stand at around 2.07% for a 90-day Treasury instrument.

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