The latest from bfinance for you;
Independent global investment consultancy bfinance has published a new paper, Insurance-linked Securities: Key Questions for Manager Selectors, as institutional investors revisit the asset class following a marked recovery in performance and market confidence during 2024 and 2025.
After a prolonged period of weak returns and heightened loss activity in 2021 and 2022, Insurance-linked Securities (ILS) have re-emerged as a focus area for allocators seeking diversification, attractive income and improved risk pricing. A reset in market terms, stronger underwriting discipline and materially higher spreads have reshaped the opportunity set, prompting renewed interest from investors reassessing the role of ILS within diversified portfolios.
Despite this resurgence, bfinance highlights that the asset class remains complex and uneven, with outcomes highly sensitive to manager skill, portfolio construction choices and operational execution. The paper argues that while improved market conditions have enhanced the appeal of ILS, they also raise the importance of disciplined manager selection to avoid repeating past pitfalls experienced during earlier cycles.
Insurance-linked Securities: Key Questions for Manager Selectors provides a structured framework to support investors navigating this renewed opportunity. It examines how managers define and manage risk appetite, construct exposures across perils and regions, and translate catastrophe modelling outputs into portfolio decisions. The paper also explores variation in approaches to liquidity management, collateral structures, use of leverage and the balance between catastrophe bonds and private reinsurance strategies.
A central theme is the need to look beyond headline returns during favourable periods and to assess how managers prepare for, and respond to, adverse loss environments. The paper encourages investors to examine how tail risk is managed, how model uncertainty and loss creep are addressed, and how transparency and communication are maintained during periods of stress.
Operational robustness and governance are also emphasised as critical differentiators. Given the specialised nature of ILS, bfinance highlights the importance of resourcing, alignment of incentives and the effective use of third-party providers such as catastrophe modelling firms, brokers and collateral managers. Weaknesses in these areas can materially undermine portfolio outcomes, even when market conditions are supportive.
Drawing on its ongoing global manager research and selection activity, bfinance sets out targeted questions designed to help investment committees and fiduciaries distinguish between superficially similar offerings. Rather than promoting a single preferred approach, the paper stresses the importance of clarity around objectives, risk tolerance and the intended role of ILS within the broader portfolio.
Insurance-linked Securities: Key Questions for Manager Selectors is intended for institutional investors, wealth managers and other professional allocators considering new or expanded allocations to ILS, as well as those reviewing existing manager relationships in a materially changed market environment.
Insurance-linked Securities: Key Questions for Manager Selectors is now available to download from the bfinance website and can be found here.
Mathias Neidert, Managing Director, bfinance commented:
“The Insurance-linked Securities (ILS) sector has recovered strongly, with catastrophe bond issuance hitting record levels. While institutional investor appetite has also been resurgent, allocators are keen to avoid pitfalls that scuppered performance in previous years. Manager selection in ILS involves distinct challenges, with unique investment risks and significant operational complexity to consider. Success relies on thoughtful investment mandate design. “
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