Casualty, duration and total return fuel ILS’s next phase: Artex

For much of its history, insurance-linked securities (ILS) were defined by what they were not: not balance-sheet reinsurance, long-term capital, nor particularly flexible. That framing no longer holds with ILS moving away from its traditional use case to shape the market into “one that is more flexible and better positioned to deliver consistent pricing and capacity”, according to a key player in the ILS space.

Kathleen Faries, CEO of Artex Capital Solutions, told Bermuda:Re+ILS: “ILS has clearly moved beyond being a single peril, event-driven market and is now functioning as a broader capital platform.”

What began as a focused source of peak peril capacity is now evolving into a broad-based capital platform spanning casualty, cyber, long-tail exposures and hybrid structures. Ahead of the curve, Faries reported that Artex has focused on expanding the range of structures it supports, while aligning more closely with expanding investor appetite.

“This past year has been about pushing the boundaries of what alternative capital can do and making those innovations accessible to more investors,” Faries said.

Duration replaces volatility as the attraction

One of the most significant changes in the ILS market is the growing prominence of casualty risk. Rather than concentrating capital in peak catastrophe layers, investors are increasingly allocating to structures that generate steadier cash flows over longer time horizons.

Artex is adapting its strategy, as is the wider market, to meet the growing emphasis on casualty and longer-duration risks. Faries reported that, over the past 12 months, the market has expanded its use of enhanced casualty-focused sidecars and quota shares across its Bermuda and Lloyd’s platforms, responding to investor demand “focused on a total return strategy”, which prioritises frequency and duration rather than severity losses.

The attraction is not simply yield, but predictability. Longer-duration casualty structures allow investors to deploy capital more efficiently, manage assets alongside liabilities and smooth returns across market cycles.

Alongside casualty, Artex is also seeing momentum in “fully collateralised, multi-year reinsurance programmes that add flexibility and limit credit exposure”. The appeal is twofold: these structures provide cedants with committed capacity while reducing counterparty credit exposure, and they provide investors with clearer visibility into risk and outcomes.

“This approach matters because it brings high-quality, diversified capital into the market, expanding capacity for insurers while giving investors clearer choices in a more complex risk environment,” Faries explained.

From product to platform

These developments reflect a broader structural evolution. ILS is no longer best understood as a niche corner of the catastrophe market. Instead, it is increasingly functioning as a multi-line capital platform that can support a wide range of risk transfer needs.

Faries sees the force behind this shift toward casualty, cyber, secondary perils and hybrid structures: “These trends are being driven by social inflation, constrained traditional reinsurance capacity and investors seeking return profiles that behave differently from mainstream financial markets.”

The result is an ILS market both broader and more resilient. What began as a peril-specific solution has evolved into a flexible capacity source that delivers consistent pricing and supports insurers through volatile periods.

Scale with substance

The growth of the market underlines just how material this shift has been, with Faries noting that “the pace and breadth of growth are materially different than they were five years ago”.

Record issuance in the catastrophe bond market – surpassing $25 billion in 2025 alone – has been accompanied by total alternative capital exceeding $120 billion. But of equal significance to scale is how capital is now being deployed.

Years of conversation around casualty ILS have finally landed established deals on the table, which Faries credits to “innovative structures and legacy market exit options”, explaining that the market now extends well beyond property catastrophe to include cyber, ESG-linked risks, and, increasingly, bespoke hybrid transactions.

That broader foundation improves the industry’s ability to absorb shocks while offering investors access to more diversified and consistent risk-linked returns.

Capital is getting choosier

Not all ILS structures are benefiting equally from this influx of capital. Investors are becoming more selective. Faries explained that “capital is increasingly being directed toward structures that offer greater visibility around risk and outcomes.” Casualty sidecars are a prime example, having attracted billions in commitments because “they provide long-duration cash flow which allows investors to maximise total return yield (underwriting and investment return profit)”.

A notable development is the growing involvement of private credit capital. Many of these investors are comfortable managing assets backing longer-tail liabilities. Faries cautions that: “This development does introduce complexity in structure and capital backing these transactions. Given that the total AUM in the private credit space is projected at $2 trillion, it is certainly an investor base to pay attention to and manage appropriately, given the nature of the underlying collateral pools.”

High losses, steady capital

Last year marked the sixth consecutive year with insured losses exceeding $100 billion, while US severe convective storm losses topped $50 billion for a third straight year.

Yet these losses have not triggered a retreat of ILS capital. Instead, they have prompted a recalibration of strategy. “Higher loss environments aren’t driving investors out of the market,” Faries said, “but they are changing how capital is deployed.”

Artex has seen that investors are broadening exposure across secondary perils and emerging markets, favouring higher attachment points and showing increasing interest in parametric solutions for their speed and clarity. The emphasis has shifted toward sustainable returns over a five to ten-year horizon, rather than rapid scaling.

Considering the softening seen in the past 12 months, Faries pointed to a combination of “traditional balance sheet retained earnings as well as increased alternative capital interest across short and long-tail lines”. While pricing pressure is evident in some areas, Artex has seen attachment points and terms remain broadly stable.

Building infrastructure for what comes next

The ILS market’s evolution from a narrow catastrophe tool into a diversified, multi-line capital platform is reshaping how risk is financed and shared. As investors look for longer-duration, more predictable return profiles and cedants seek reliable, flexible capacity, structures such as casualty sidecars, multi-year collateralised programmes and hybrid transactions are likely to define the next phase of growth.

The expanding range of investors – from traditional ILS funds to private credit, and others interested in total return structures – is expanding the menu of viable risk-transfer solutions. If sustained, Faries believes this trend points to a larger, deeper asset class with greater structural resilience.

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