The ILS market has strong prospects for H2 2025 with robust structural drivers including retained earnings performance – though it has hurdles to jump for long-term growth in casualty, according to a panel of executives at an Insurance Insider ILS roundtable.
Participants at the roundtable, held at the Monte Carlo Rendez-Vous 2025, in association with Conyers, discussed how increased demand for ILS risk across the board, as well as a widening investor base, and a strong appetite for hurricane capacity, is fuelling capital in-flows.
They pointed to a positive performance of ILS through the H1 period, despite losses from the LA wildfires and severe convective storms (SCS) that impacted the private ILS segment, with the wider market seeing a healthy supply/demand balance.
The emergence of pricing pressure was raised, against the backdrop of industry debates about a softening market, along with a related need for a firm focus on terms and conditions given some outsized losses of the recent past.
The discussion was held at a time of elevated collateral yields, a healthy maturity pipeline, and a growing appetite for diversified risk exposures, including higher-frequency and multi-event structures, as well as new sponsors and perils beyond property cat.
The potential for ILS growth in casualty and cyber was touched on during the debate, with cyber expected to become “truly significant” to the ILS market, alongside a recognition that it may require a “multi-year” development.
Tariffs, volatility and distractions
In a year dominated by US-driven trade tariff conflicts, and when political instability impacted equity markets, the panel discussed the second-order effects on ILS.
As US tariffs were threatened, implemented, called off and brought back, at various stages during H1, the ILS market was largely immune to the volatility in equities.
This was a somewhat double-edged sword for ILS participants. As one executive at the roundtable explained, because institutional investors were preoccupied with the impacts of tariffs, they lacked bandwidth to go through the education process and to onboard a new ILS fund.
The flipside of this was that ongoing volatility caused by tariffs is “not bad for the effectiveness” of the ILS asset class, as it demonstrated the lack of correlation with other asset classes more affected by US policy.
Other, more direct effects of reinsurance market trends were also discussed. One roundtable participant observed that, after cedants were unable to get coverage in the hard market and increased retentions, opportunities have emerged “to complement reinsurance programs at the top, or have some sideways cover.” The ILS executive said that, across cat bonds, there has been a re-emergence of more cascading structures that provide coverage at the top and at a sideways level.
The capital is continuing to grow, and now the market is big enough that this growth is quite meaningful to the broader reinsurance market. So growth begets growth at this point
On further driving forces, one director acknowledged that there was “more capital than issuance” in the cat bond market, while sounding a note of optimism.
“With interest rates at their current level, and a healthy spread on the bonds, a $55bn market is going to produce another $5bn of cash into the system before you consider in-flows. The capital is continuing to grow, and now the market is big enough that this growth is quite meaningful to the broader reinsurance market. So growth begets growth at this point,” the executive said.
Wildfires, SCS and investor thinking
The conversation, inevitably, turned to the LA wildfires and Mid-West SCS, and their impact on investor appetite.
Participants acknowledged that while investors are wary of wildfire and SCS exposure on an aggregate basis, there is still capacity for these perils – more so than there has been previously. However, the onus will be on the market to “get the structure and price correct, including event caps and event deductibles.”
Recent, significant modelling changes specific to wildfire were explored, as a means to assuage investor concerns. Amid cedant demand for higher frequency cover on wildfire, one executive said there will be “a push beyond the boundaries of what’s been done in the past.”
It was also noted that, subsequent to the LA wildfires, the market has absorbed three single-peril cat bonds that provide meaningful capacity. One roundtable participant said: “The aggregate outstanding capacity for wildfire is higher than it was at the start of the year.”
Casualty and cyber: Opportunities beyond cat risk
Casualty is generally regarded as a significant opportunity for the ILS market. However, participants singled out challenges that would need to be resolved to enable proliferation of casualty ILS, due to the long-tail risks involved.
One executive raised the issue of valuing ILS casualty transactions. They said: “When you have a one or a two-year lock fund, and seven-year liabilities, how do you let people leave in the middle when the liabilities haven't crystallised yet?”
Another participant explained that casualty deals would require investors to take on potential adverse developments which may come in after eight to 10 years. “You need to be prepared to accept more aggressive investment strategy. Now the question is, how far do you go? What do you accept? These are the two crucial questions,” they added.
It was also noted that reinsurers post large swings in their reserves on casualty far more often than they do for property cat, creating “a casualty data enigma.”
One participant noted the appearance of casualty sidecars which are driven by MGA underwriting, which raises questions about how alignment works between a non-balance sheet underwriter in the casualty space with seven to 10-year tails.
Some optimistic views were raised on the future for cyber in ILS. One participant described the high volume of quota share in cyber, which will likely shift to XoL over time, at which point ILS will have a role to play in taking the tail out of XoL cyber business.
The huge demand among corporations for cyber-related protection was discussed, and a related need for insurers to have a vibrant, non-proportional market to get capacity.
One director observed that the cyber ILS market has the potential to be two or three times the size it is today. They added that it has taken the ILS market two decades to get to $55bn for property cat, and the market will have to reckon with the impact of AI in cyber and its affect on accumulation risk.
It was agreed that cyber will become an important part of the ILS proposition, particularly in the context of activities among corporates and governments on both offensive and defensive cyber protection measures.
One participant said it will come down to “how well we can design products that respond to something with systemic risk that is hard to quantify.”
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