The expanding architecture of ILS
From record issuance to tokenisation, Bermuda is helping shape a more resilient global risk transfer market, says Hanni Ali, chair of ILS Bermuda.
The insurance-linked securities (ILS) market entered 2026 with momentum and a clear sense of purpose. After a record year for catastrophe bond issuance in 2025, the first half of 2026 has reinforced the sector’s role as a deep, resilient and increasingly mainstream source of catastrophe risk capital. Investor demand remains strong, sponsors continue to seek diversified protection and the market is broadening beyond its historical concentration in peak US wind exposure.
Bermuda is central to this evolution. The island’s advantage is not only its scale as a leading ILS domicile, but the depth of its ecosystem: experienced regulators, specialist service providers, legal and structuring expertise, underwriting talent and proximity to both global capital and reinsurance markets. As risks become more complex and interconnected, Bermuda’s speed, certainty and credibility remain a powerful differentiator.
Catastrophe bond issuance reached historic levels in 2025, and in the first half of 2026 has already set fresh records. What’s important is not simply growth, but the increasing recognition of ILS as a structural component of the global risk transfer system.
For investors, catastrophe bonds continue to offer low correlation to traditional equity and credit markets, a valuable attribute against a backdrop of macroeconomic uncertainty and geopolitical tension. For cedants, ILS provides access to competitive, scalable alternative capital at a time when exposure values, modelled losses and protection needs continue to rise. For Bermuda, where complex risk, capital and innovation meet, this creates an opportunity.
Looking ahead, three themes are likely to define the next phase of ILS development. First, diversification will continue. While natural catastrophe risk remains the foundation of the market, greater investor and sponsor familiarity is supporting growth in areas such as wildfire, severe convective storm, earthquake, cyber and other non-traditional risks. This broadening allows ILS to respond to a wider range of protection needs while offering investors more varied sources of risk and return.
Second, pricing discipline will matter. Strong capital inflows and abundant reinsurance capacity have contributed to spread compression in parts of the catastrophe bond market. While a natural feature of a maturing marketplace, it places greater emphasis on underwriting quality, modelling transparency and diligent portfolio construction. Here Bermuda’s concentration of technical expertise is particularly valuable.
Third, growing climate risk will continue to shape product development. Rising catastrophe losses and widening protection gaps are increasing demand for solutions that can deliver rapid post-event liquidity. Parametric structures, sovereign risk pools and climate-linked products are therefore expected to become more prominent, particularly for regions and communities exposed to intensifying natural catastrophe and climate variability risks.
Innovation is no longer an aspiration for the ILS sector; it is becoming part of the market’s operating model. Tokenisation is one example. The Bermuda Monetary Authority’s work on tokenised financial instruments and its focus on how these developments might intersect with ILS demonstrate willingness to modernise responsibly. If implemented carefully, tokenisation could support broader investor access, more efficient settlement, improved transparency and potentially greater secondary market liquidity.
Bermuda’s proposed focus on parametric special purpose insurance reflects the same practical approach: encouraging innovation while maintaining regulatory integrity – a balance central to Bermuda’s reputation.
Bermuda’s long-term success will also depend on people. As ILS expands, the industry will require deeper expertise in underwriting, risk modelling, analytics, portfolio management, law, regulation and capital markets. Continued investment in local talent, including through the partnership between ILS Bermuda and Bermuda College, is therefore essential to sustaining the island’s leadership.
As global risk becomes more volatile, interconnected and consequential, Bermuda is not simply participating in the future of ILS, it is helping to shape a more resilient global risk transfer market.
Hanni Ali is chair of ILS Bermuda and CEO of Radix ILS.
For more news on Bermuda Risk Review 2026, click here.
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