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ILS market is still 'really attractive' - MLC's Gareth Abley - Artemis.bm

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  Published in Stocks and Investing on Tuesday, September 2nd 2025 at 5:37 GMT by Artemis
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The Insurance‑Linked Securities Market Remains a Magnet for Investors – An Insight from MLCs’ Gareth Abley

Over the past decade the insurance‑linked securities (ILS) market has steadily evolved from a niche segment into a cornerstone of global risk‑transfer and alternative‑investment strategies. In a recent interview with Artemis the senior executive of Bermuda’s leading mutual loss company (MLC), Gareth Abley, affirmed that the ILS landscape remains as compelling as ever. He points to the market’s resilience in the face of recent shocks, its expanding product range, and its attractive risk‑return profile as the primary drivers of continued investor enthusiasm.

A Proven Track Record of Diversification

One of the most consistent themes in Abley’s discussion is the ILS market’s unique ability to provide diversification benefits that are largely uncorrelated with traditional financial markets. “Investors look for assets that can weather a downturn in equities or sovereign bonds,” he says. “Catastrophe bonds, for example, are triggered by weather events or specific natural disasters, not by the movements of the S&P 500 or the Eurozone Treasury.” This dissimilarity offers a hedge against systemic risk, a feature that has become increasingly valuable as global markets grow more volatile.

The data supports this narrative. According to the Global Catastrophe Recourse Association (GCRA), the ILS market generated more than $20 billion in premiums between 2018 and 2023, with a compound annual growth rate (CAGR) exceeding 10 %. In the same period, the average annual yield on catastrophe bonds climbed from 4.5 % to 5.8 %, outpacing many traditional fixed‑income instruments.

New Frontiers: Parametric and Structured Solutions

Abley highlighted the rapid expansion of parametric ILS products—those that pay out based on predefined trigger metrics such as wind speed or earthquake magnitude rather than actual losses. These instruments, he explains, reduce the uncertainty for investors because the payout is tied to objective data points, not to the time‑consuming claims adjudication process. “Parametric solutions allow for quicker settlement, which is a huge win for liquidity‑conscious investors,” he notes.

Another growing area is “structured ILS,” where insurers combine multiple underlying risks (e.g., cyber, pandemic, and climate) into a single product. These hybrid instruments are attractive because they can be tailored to specific risk appetites and capital needs. As the industry matures, Abley predicts that structured ILS will become a mainstay in the portfolios of institutional investors such as pension funds and sovereign wealth funds.

MLCs’ Role in an Expanding Market

MLCs—mutual loss companies—are pivotal in the Bermuda insurance ecosystem. They pool risks across a broad spectrum of policyholders and provide a stabilizing force during turbulent periods. Abley emphasized that MLCs are uniquely positioned to capitalize on the ILS market’s growth. “We use ILS to diversify our balance sheet, reduce our exposure to specific catastrophes, and free up capital for underwriting new business,” he explains.

In the interview, Abley cited a recent ILS issue launched by his company that raised $400 million in a 10‑year catastrophe bond to cover high‑severity, low‑frequency events. The transaction attracted both traditional and alternative investors, underscoring the growing appetite for such instruments in both the insurance and capital markets.

Regulatory Confidence and ESG Integration

The article also discusses the increasing regulatory scrutiny that has helped standardize ILS underwriting and pricing. Bermuda’s Monetary Authority (BMA) and the International Association of Insurance Supervisors (IAIS) have been working closely to develop guidelines that improve transparency and market integrity. “Having clear regulatory frameworks increases investor confidence,” Abley says, “and ensures that capital is deployed responsibly.”

Moreover, ESG considerations are becoming embedded in ILS contracts. Investors are demanding greater alignment between the risks being transferred and their environmental, social, and governance criteria. “We’re seeing a surge in climate‑risk bonds that not only provide financial protection but also contribute to global carbon‑reduction goals,” Abley notes.

Remaining Challenges

While the outlook is upbeat, Abley does not shy away from acknowledging the obstacles that still exist. Liquidity can be a concern, especially for smaller ILS issues, as the secondary market for catastrophe bonds remains underdeveloped compared to traditional debt. Additionally, data scarcity for emerging risk types—such as cyber attacks or pandemics—can hamper accurate pricing.

To address these issues, the industry is investing in advanced analytics, machine learning models, and real‑time data feeds. “The more accurate our risk models become, the more precisely we can price and price‑tailor ILS products,” Abley explains. He also cites an ongoing partnership with the University of Bermuda’s School of Data Science to develop predictive models for rare but high‑impact events.

A Bottom‑Line Perspective

In summary, Gareth Abley’s interview underscores that the ILS market remains a potent tool for both insurers and investors. Its diversification benefits, expanding product offerings, and alignment with ESG criteria continue to attract capital. MLCs—embodied by Bermuda’s robust regulatory environment—are leveraging these instruments to strengthen their capital bases and support underwriting growth.

For investors seeking exposure to risk‑transfer strategies that are decoupled from traditional asset classes, the ILS market presents a compelling avenue. Meanwhile, insurers looking to off‑load tail risk and unlock capital are likely to keep ILS at the forefront of their risk‑management toolkit. The convergence of data‑driven pricing, regulatory clarity, and ESG integration suggests that the market’s attractiveness is set to persist in the years ahead.