Last year was a watershed for many industries, and the insurance-linked securities market was no exception. ILS is a sector that has gained considerable momentum in the last decade, and was included in the same category as other, more volatile financial products.

Unlike other financial products, however, catastrophe bonds–a major component of the ILS market–held their values quite well during the downturn.

Despite the influence of market rumors and pushback by naysayers, cat bond supporters have not wavered in their claims that the returns on these types of securities are relatively uncorrelated with those of the broader financial markets. They continue to offer significant diversification benefits (especially with respect to default risk). Last year provided further proof of this concept.

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