Investors favour scalable ILS structures as allocations rise, Gallagher Re says

Institutional investors are increasing their allocations to insurance-related assets, with catastrophe bonds, sidecars and structured balance sheet solutions attracting the strongest demand, according to new research from Gallagher Securities.

The report, “Unlocking Insurance Capital: The View from Investors”, found that 60% of surveyed investors plan to increase their exposure to insurance-related assets over the next two years.

Gallagher Securities said the findings were based 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.

Jason Bolding, CEO of Gallagher Securities, said: “We’re in a market where capital wants access to high-quality underwriting, and insurers want stable, scalable capacity.

“The value comes from building the bridge between the two.”

The report said nontraditional capital has moved from the periphery to the mainstream, spanning catastrophe bonds, sidecars and direct investments in insurance company debt and equity.

It said these forms of risk financing have become a “powerful complement to traditional reinsurance”, giving insurers new ways to diversify their capital base, stabilise earnings and improve strategic flexibility.

Gallagher Securities said investor demand is strongest for liquid or easily scalable insurance linked securities (ILS) structures, including catastrophe bonds, sidecars and collateralised reinsurance.

“These structures are practical mechanisms through which to secure capacity and build long-term capital partnerships,” the report said.

Catastrophe bonds remain the primary destination for new allocations, with 79% of respondents targeting the asset class.

Gallagher Securities said their appeal lies in scalability, repeatable deal mechanics, clearly defined downside and post-loss transparency, allowing investors to assess risk with greater confidence.

The report said investors in cat bonds and similar ILS structures emphasised “post-loss transparency, stronger model governance and contract certainty”, positioning these securities as a repeatable, programmatic allocation.

Sidecars and structured balance sheet solutions are also drawing strong interest, with 53% of respondents planning allocations.

Gallagher Securities said sidecars, which allow insurers to share specific and time-limited portfolios of risk with investors, are attracting capital where economic alignment, underwriting discipline and operational transparency are clear.

By contrast, appetite for direct investment in insurance company equity or debt was more limited, with 21% of respondents targeting these strategies.

The report said ownership-oriented formats typically require deeper operational involvement, which many investors seek to avoid by investing more directly in the risk origination capabilities of reinsurers and insurers.

Investor interest is being driven by non-correlation with public markets, diversification and access to underwriting returns as a distinct source of performance.

The report said “underwriting returns” ranked closely behind non-correlation as a key investor motivation, reflecting appetite for vehicles that offer pure exposure to underwriting rather than broader insurance company operations or asset management.

Property catastrophe remains the dominant area of interest, cited by 72.9% of respondents as a line they expect to invest in within the next 12 months.

Cyber was the next most popular business line, at 27.1%, followed by casualty ILS, at 22.9%.

Life and annuities were selected by 20.8% of investors, while terrorism was picked out by 10.8%.

Gallagher Securities said investor return expectations are increasingly structure-specific.

For catastrophe bonds and similar ILS structures, allocators are targeting high single-digit to low-teen returns.

Sidecars and similar vehicles cluster around the mid-teen range, while Funds at Lloyd’s targets sit in the mid-to-high-teen range.

The report also warned that investors remain focused on risks including low liquidity, lack of transparency and valuation complexity.

Gallagher Securities said these concerns can be addressed through clearer terms, standardised exposure reporting, model governance, reliable data and stronger disclosure.

Bolding said: “This is a unique moment: capital conditions are favourable, investor appetite is strong, and structures are evolving.

“The opportunity is to build relationships now that will matter when conditions tighten,” he added.