Private credit could represent next big capital pool for casualty ILS

Casualty ILS may have spent years on the periphery of institutional capital conversations, but the dynamic now appears to be shifting from education to deployment.

That is according to Kier James, chief underwriting officer at MultiStrat, who told Bermuda:Re+ILS, during the Business Development Agency Risk Summit, held in Bermuda this week, that “two or three years ago, growth was slow, it was the education phase for informing people what the product was.” Today, that dialogue has materially changed.

That shift in investor posture reflects more than simple familiarity. It signals the emergence of a supporting infrastructure that James defined from fronting carriers to exit mechanisms, which has gradually made casualty ILS more workable for institutional capital.

“When we first started, there weren’t that many fronting carriers or forward exit options for ILS casualty,” he explained. But over time, cedants have adapted their structures to investor expectations, “structuring their outwards reinsurance in a way that’s favourable to investors, offering reasonably low loss ratio caps, so it avoids a need for holding large amounts of contingent collateral.”

The result is a market that is increasingly designed around capital efficiency rather than purely underwriting capacity.

At the portfolio level, casualty ILS is being positioned as a structural capital lever. “The product we create generates a degree of leverage, and so reduces the weight and average cost of capital,” he said. This makes the vehicle attractive to investors: “If they’re getting higher interest rates, they can generate higher returns.”

With interest rates expected to remain elevated, capital efficiency is drawing a broader class of investors. James said that early growth was driven largely by smaller allocators, but today, the investor base is widening: “Now we’re seeing some very large asset managers, and pension funds are starting to pay interest too.”

This widening capital base is also reshaping how portfolios are structured. Investors increasingly want volatility control and capital predictability. “People are seeing that portfolios can be structured to really drastically reduce volatility,” James said, which has translated into tighter contract terms. Historically, casualty programmes could carry loss ratio caps near 200%, creating a disconnect between modelling outputs and contractual protections. “Over time, we’ve noticed those loss ratio caps come down as people have gotten more comfortable with the product.”

That comfort is emerging despite a structural difference from property catastrophe ILS: the absence of third-party catastrophe models.

“We don’t benefit from third-party modelling software,” he said, noting that transparency has historically been a concern. Yet casualty compensates with data depth. “What we lack in standardised models is made up for in huge data set. We can have hundreds, thousands, of claims on any given programme per year.”

For investors, that data density and the slower development curve of casualty losses opens the door to an adjacent capital opportunity: private credit.

“Alternative assets will likely start to come to the market as well, including private credit,” he said. With the market currently around $2 trillion and projected to reach $4–5 trillion by 2030, “there’s a lot of assets to be deployed there.” James believes the asset class also fits casualty structurally. “Casualty is long tail. Private credit is less liquid. That makes for a natural fit.”

That alignment may prove pivotal. While catastrophe ILS was built around rapid liquidity and event risk, casualty’s longer duration is beginning to appeal to a different type of allocator, one seeking lower volatility and longer-tenor returns.

As James put it, the opportunity is ultimately one of scale. The casualty liability pool is vast, but the market historically struggled to capture the attention of the largest asset managers. “It hasn’t been big enough to be on their radar.”

That may be changing. “Now they’re starting to see the opportunities.”

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