Capital meets complexity: why the next phase of ILS demands a different mindset

The insurance-linked securities (ILS) market is not simply recovering — it is recalibrating. In a recent discussion with AM Best, Philipp Kusche, Co-Head Global ILS, Chair of HCMA Europe, Howden Capital Markets & Advisory, shared his perspective on how capital markets capacity is evolving, and why this moment matters.

The ILS market has entered a new phase.

“We’re really seeing ILS not being an alternative tool anymore, it has become a cornerstone to many parties who are using it. Really, almost all insurers and reinsurers are now looking at cat bonds in particular as they’re putting together their risk management programs,” said Kusche.

After several years of elevated catastrophe losses capital has returned with strong support. But it has returned selectively. Investors are focused on alignment, transparency and disciplined deployment, not growth for growth’s sake.

This is not a soft cycle; it is a recalibrated one.

Capital is available but purposeful

Recent loss experience has strengthened investor discipline rather than diminished appetite. Capacity remains strong, particularly at higher layers, but execution now depends on clarity of structure and credible analytics.

“For cedants, this creates opportunity,” said Kusche. “Access to capital markets capacity remains competitive, yet the quality of engagement — modelling, data and program design — is increasingly decisive.”

ILS capital today is intentional.

Cat bonds are now strategic

Cat bonds have evolved from opportunistic placements to strategic components of reinsurance programs.

Multi-year issuance offers diversification from traditional reinsurance markets and balance sheet at a time when volatility is structural. Increasingly, cedants are integrating ILS capacity alongside rated reinsurance as part of long-term capital strategy.

The asset class is no longer peripheral, it is embedded.

Volatility has reinforced the model

Large events have tested the market while structures have largely performed as expected. Investors also understand the risk-return dynamics while cedants understand the execution framework.

Rather than undermining confidence, volatility has clarified the value proposition.

As traditional reinsurance pricing moderates from recent peaks, the interplay between capital markets and rated capacity becomes more strategically important. ILS complements the market.

Measured innovation

Interest continues to build around parametric structures, regional diversification and selective expansion beyond core property cat. But growth remains disciplined.

Innovation is welcomed where it is technically robust and structurally aligned.

Why this matters now

As shown in Howden’s 1.1 renewal report, Re-balancing, the reinsurance market is transitioning into a phase of hard market softening.

As structural risks remain elevated, capital efficiency continues to be critical, and ILS provides multi-year stability. As a result, there are more opportunities for diversified investor access and structural flexibility.

“The opportunity is not about deploying more capital; it is about deploying it intelligently,” said Kusche.

Watch the full discussion with Philipp Kusche to hear how HCMA sees the next phase unfolding.

In the full video, Philipp Kusche explores:

• How investor sentiment has evolved post-2023
• Why attachment points and structures matter more than headline spreads
• The outlook for catastrophe bonds in 2026
• How cedants should think about integrating ILS strategically