LGT Capital Partners believes that 2025 should see continued growth of the insurance-linked securities (ILS) asset class, in addition to attractive allocation opportunities, against a backdrop of rising demand for defense across the insurance and reinsurance industry.
This rising demand for defense is being met by an increased supply of capability, but LGT Capital Partners explained that provide and demand can find the next balance in 2025.
LGT Capital Partners is a privately-owned global multi-alternatives investment firm and has a dedicated ILS management unit, LGT ILS Partners.
Within the investment firm’s Investment Outlook 2025, LGT Capital Partners explains that, throughout the alternative investment landscape, “the insurance-linked strategies (ILS) market stays attractive, supported by strong demand for insurance coverage.”
The demand for reinsurance capability and protection has been increasing, driven by loss-heavy previous years, construction and exposure related trends, continued inflationary pressures, rising insured values and increased regulatory requirements.
These aspects have helped to drive growth in catastrophe bonds and personal ILS instruments and the investment firm believes that, “With disciplined portfolio management, the asset class can offer promising allocation opportunities for 2025.”
The recent 2024 Atlantic hurricane season demonstrated the importance of portfolio discipline, LGT Capital Partners said.
“Ultimately, event activity – with several hurricanes making landfall on the US mainland – underlines the importance of prudent portfolio management in ILS investing, with a transparent give attention to limiting downside risk,” the investment firm explained.
Discussing the best way supply demand aspects are manifesting within the ILS market, LGT Capital Partners continued, “While the mixture of increased regulatory capital requirements and above-average event activity should now result in a continued strong price environment, this high demand for defense purchases can be meeting an increased supply of capability.
“This growth in available capital is partially driven by the positive returns of ILS managers and reinsurers, who’re reallocating their retained earnings. One other vital source of fresh capital is the wealth management segment, where we’re seeing a continued interest in liquid ILS (cat bond) allocations.”
Martin Fischer, Executive Director working in investor relations at LGT ILS Partners, further commented on what these dynamics mean for 2025 in ILS, “Recent market inflows into the liquid market segment, namely cat bonds, supported a slight softening of premiums.
“The private ILS segment nonetheless, which accounts for greater than half of the choice reinsurance market, is anticipated to see such softening to a lesser extent.
“Our blended strategies are well-prepared to learn from this divergence, by getting access to each market segments.”
Overall, LGT Capital Partners forecasts further growth for the ILS market in 2025, while attractive allocation opportunities will proceed to be found out there.