Potential allocators to private ILS are in “wait and see” mode for a third Atlantic hurricane season, sources said, as the reinsurance market pricing cycle continues to turn following initial dislocation after 2022’s Hurricane Ian.
While the number of investors exploring a potential investment in private ILS has risen in 2025 compared to last year, the higher level of interest has mostly not yet translated into allocations.
One source indicated double the amount of interest in H1 2025 compared to H1 2024, by number of investors and volume.
Another said: “There is definitely interest in private ILS, but we are not seeing that come through by way of meaningful allocations just yet.”
A third source noted that institutional investors with existing, long-term ILS allocations, including Canadian and Swiss pension funds, were “considering increasing their allocations.” However, this was dependent on a benign wind season this year.
Meanwhile, a cohort of opportunistic investors is also on the sidelines, watching for potential price dislocation in the event of an active wind season – including some who missed out on the pricing peaks of 2023 and 2024.
“This is a classic problem with private ILS. Investors don’t like to move pre-emptively, and end up missing the peak of the cycle,” a source said.
They added: “Across the risk stack, the average expected return in private ILS was over 25% last year, now it’s closer to 15% – a significant drop.”
The Eurekahedge ILS Advisers Index showed a return to profitability for private ILS strategies that began from the mid-point of 2023, with this group of funds having generated profits of 18% over the last seven years.
Another factor influencing fundraising in private ILS is the returns on offer from cat bonds, with bond spreads down by ~16% in Q1 2025 versus Q1 2024, according to data tracked by Insurance Insider ILS.
(As a comparison, open market property cat reinsurance rates fell by 10% on average on a risk adjusted basis at the 1 June renewals, according to broker Howden Re.)
A source noted that a benign wind season would likely result in rate stability in cat bonds, potentially driving a “reshuffle” of capital from cat bond funds to more private ILS-focused strategies.
“We are starting to see a decoupling in pricing between cat bonds and private ILS, where the yield for a remote risk cat bond is less attractive than the comparative private ILS transaction,” a source said.
The strong performance in private ILS in 2023 and 2024 has also helped to reignite interest from several investors who were impacted by poor performance during 2017 through 2021.
A source said: “We have seen investors who left start to look at the asset class once again on the back of two years of good performance, and in some cases even pulling the trigger.”
Meanwhile improvements to private ILS deal structures, particularly those addressing concerns about trapped collateral, which were implemented during the hard market, are expected to hold even as rates soften, further supporting fundraising efforts.
Tariff volatility plays both ways
The wider financial market upheaval that has accompanied US President Donald Trump’s policies on import tariffs has also impacted fundraising, leading some investors to press pause on their explorations of the asset class.
Luca Albertini, founding partner and CEO of Leadenhall Capital Partners, said the tariffs “pushed away three or four active opportunities.”
“They didn’t walk away completely, they just needed more time to assess the opportunity due to the market volatility,” he said.
Trump’s aggressive stance imposing a baseline 10% tariff on all imports from 5 April drove a downward spike in value on the S&P 500 Index from 2 April to 9 April, with prices mostly having climbed back up again.
Meanwhile on the bond markets, yields dipped as prices jumped following the tariffs announcement.
A further announcement of a 90-day pause on the tariffs policy has introduced ongoing uncertainty, with potential pros and cons for ILS fundraising.
One source noted that the ability to raise funds depends on the type of end investor an ILS manager is targeting.
“If you’re a small shop, then you’re going to be easily distracted by the market volatility, so ILS won’t be your biggest priority if the tariffs cause market volatility after the pause,” the source said.
“On the other hand, if you’re a large pension fund with a huge team, you can continue to focus on ILS,” they added.
Raffaele Dell’Amore, managing director at Cambridge Associates, noted that market volatility had highlighted the diversification benefits of ILS.
“If, as an allocator, you sit at a screen and look at the market volatility, the case of ILS would be validated, which does increase its current attractiveness. This is what we saw with the inquiries we were getting when the tariff campaign began,” Dell’Amore said.