Authors: Jason Bolding Ben Lyon
The market for insurance-linked securities (ILS) and structured insurance investments has had a busy start to 2026, with near-record cat bond issuance projected for Q1 amid buoyant investor demand. However, insurers are entitled to ask how sustainable this is, particularly if increasing capital inflows lead to moderating returns for investors.
In 2023, the index return from ILS investments was around 14%. Last year, it was closer to 11% 1, and it may ease further. At the same time, investors' choices are expanding rapidly beyond cat bonds, with growing opportunities for sidecar structures and structured debt and equity deals, offering varying degrees of trade-off between liquidity and returns.
So, the question circulating in insurers' C-suites is this: How do investors view the insurance opportunity — as a strategic allocation, or an opportunistic trade? Are they long-term partners, or a tactical source of capital?
Jason Bolding, global head of ILS at Gallagher Re, said: "This is a unique moment: Capital conditions are favorable, investor appetite is strong and structures are evolving. The opportunity is to build relationships now that will matter when conditions tighten."
To gauge the mood among ILS investors in early 2026, Gallagher Re and Gallagher Securities conducted a survey of investor views, complemented by insights from a series of in-depth conversations with expert allocators.* We drew on our extensive relationships with both specialist investors in insurance-linked securities, such as ILS funds, and more generalist asset managers across the private equity and private credit markets, who invest in ILS alongside a broader range of asset classes.
We spoke to more than 60 investors in total, and respondents were overwhelmingly senior: 94% had direct responsibility for allocation decisions. Their firms are institutionally scaled, with more than 70% managing over USD1 billion, and 16% managing over USD100 billion.
The full results of the survey will be released early next month. To offer a flavor in the meantime, the responses show that investor appetite is both increasing and becoming more sophisticated. A clear majority of investors plan to increase their exposure to insurance-related assets over the next two years, while almost none plan to reduce it.
Beyond catastrophe bonds
Catastrophe bonds are likely to continue as the mainstay of the ILS and alternative capital markets, with investors stressing their liquidity, transparency and scalability. But allocators have many other options, and are ready to explore them.
Significant numbers of investors are now exploring vehicles such as reinsurance and insurance sidecars — structures that allow investors to take on a share of insurers' underwriting risk, typically for a specific portfolio of policies. Sidecars have been of growing interest to cedants as an alternative route to reinsuring casualty lines in recent months, for example, in contrast to bond markets that remain largely focused on property catastrophe risk.
From the investors' point of view, sidecars are less tradeable than cat bonds, but they attract a narrower pool of more expert investors, who can therefore earn a "complexity premium."
Meanwhile, a significant minority of respondents are interested in making direct portfolio investments in insurance companies by buying either their equity or their debt. This can offer greater control — for example, over managing the assets associated with insurance liabilities — but dilutes pure exposure to the underwritten risks.
Part of the appeal is that insurance is not a sector that is averse to consolidation. One investor told us: "If you (as an investor) own a good company, there is a decent chance that a bigger company likes your good company, and as a result you can sell it. We do like sectors where there is good liquidity for the companies you own."
Steady returns — with a complexity premium
For years, conventional wisdom has been that investors like insurance assets because they offer steady annual returns well above cash rates, which are uncorrelated to financial markets. And by and large, over time, this is what has been delivered.
As this segment of the capital markets continues to grow and develop, however, investors are showing both pragmatism and nuance. As ever, their return expectations differ widely depending on the vehicles they invest through — and their own appetite for complexity. Broadly speaking, however, they are realistic given current market conditions.
Ben Lyon, CEO of Gallagher Securities UK and head of Capital Advisory for Gallagher Re, said that, in the round, investors are looking for more than simple exposure to the insurance market.
He said, "What they want is a curated, thoughtful and creative way to match their capital with risks that sits at the efficient frontier of complexity, duration and profitability. There are generic ways to get exposure to the insurance market, but the way a lot of alternative capital makes money is through bespoke and complex structures that only certain investors will want to consider. While the industry is awash with third-party capital, the people that make excess returns are the ones who really spend their time thinking about how to structure a deal."
For senior insurance leaders and ceded reinsurance buyers, the question today is not simply one of securing capacity, but of identifying the right capital, structured in the right way, to deliver resilience, efficiency and sustainable growth across the market cycle.
*Gallagher Re and Gallagher Securities will release the full results of their inaugural ILS Buyside Survey in May. This will include detailed findings on investors' interest in different structures, the various lines of insurance business, and their return expectations, as well as insights into how insurers can tap into this durable and expanding source of capacity.
The findings in this whitepaper draw on a quantitative survey of more than 60 large and complex institutional investors already familiar with (and investing in) insurance‑related assets, supplemented by in-depth qualitative interviews. The anonymous contributors represent a diverse range of perspectives, ensuring a comprehensive understanding of the topic. The findings have been corroborated through a number of independent sources to ensure accuracy and reliability. While the identities of the sources cannot be disclosed publicly to protect their anonymity, additional context can be provided to authorised parties upon request, subject to confidentiality agreements. The survey was conducted in Q4 2025 and the qualitative interviews were in Q1 2026.
