ILS & cat bonds show impact investing can move beyond mitigation into resilience: Sage Advisory

A new report from Sage Advisory Services, the fixed income and alternative solutions manager, has highlighted that through ILS and catastrophe bonds’ ability to allocate capital across regions and perils, these instruments make a strong case for impact investing to move beyond mitigation and into resilience.

The report, authored by Bob Smith, President and Co-Chief Investment Officer, and Andrew Poreda, Vice President, Senior Research Analyst, emphasises that the world is facing a widening deficit in resilience, and how a growing fraction of the fixed income market is currently being built to help close that gap.

“Over the first half of 2026, global natural catastrophes generated an estimated $111–$142 billion of economic losses, yet only about $46–$47 billion was insured. Aon estimated that roughly 57% of first-half losses were uninsured, while Gallagher Re estimated that 68% of the $142 billion in losses was left uninsured. These figures extend a troubling pattern. In 2025, Aon reported $260 billion of natural-catastrophe losses and Swiss Re estimated a broader $424 billion global natural-catastrophe protection gap,” Smith and Poreda explain.

The executives stressed that for communities, businesses, local governments, and infrastructure systems, uninsured catastrophe losses can wind up delaying rebuilding processes, cause major commercial interruption, strain municipal budgets, disrupt essential services, reduce employment, and also weaken long-term economic vitality.

Whilst traditional impact investing often emphasises renewable infrastructure, environmental projects, or community-development initiatives, these strategies can sometimes require investors to weigh out social outcomes against liquidity and return objectives

Of course, this is where catastrophe bonds and ILS operate differently. In such, the capital that gets allocated to cat bonds, collateralized reinsurance, and related insurance-linked instruments helps insurers, reinsurers, governments, and corporations transfer catastrophe risk, while investor returns are generated through the same mechanism that provides resilience capital to society.

“This alignment is increasingly relevant as climate adaptation becomes a global priority. Catastrophe risk bonds and ILS complement traditional sustainability strategies by focusing on adaptation and recovery — helping societies effectively manage climate-related and catastrophe-driven losses,” the report reads.

Moving forward, the executives also highlighted how cat bonds and the ILS market has historically offered competitive risk-adjusted returns with low correlation to equities and fixed income, given the fact that performance is primarily driven by insured-event risk rather than corporate earnings, interest rates, or broad economic growth.

“Industry data supports this profile. Swiss Re reported that the Swiss Re Cat Bond Total Return Index returned 11.4% in 2025 and remained lowly correlated with broader equity and fixed income markets during periods of heightened volatility. Over the last decade, cat bonds also generated positive returns in approximately 79% of months when the S&P 500 declined, reinforcing their potential to link portfolio resilience with real-world recovery capacity,” Smith and Poreda noted.

Regarding the impact of resilience investing, the authors argue that this should be measured by how effectively investor capital becomes real-world recovery capacity. They identify a number of key metrics to highlight this, ranging from financed catastrophe-risk capacity, supported insurance and reinsurance exposure,  geographic and peril diversification, as well as recovery capital positioned before disaster events, and measurable progress in narrowing global protection gaps.

Indeed, Sage Advisory’s report stresses that for catastrophe bonds and ILS, these measures are heavily central to the investment case, given that the same capital that seeks insurance risk premiums also strengthens the risk-transfer network that enables communities and public balance sheets to withstand losses, access recovery funding, and rebuild after disasters strike.

“Cat bonds and ILS make the case that impact investing can move beyond mitigation and into resilience. As catastrophe losses rise and the protection gap widens, the need is not only to rebuild after disaster, but to ensure that recovery capital is positioned before disaster strikes,” the report added.

Concluding: “By directing capital toward catastrophe-risk transfer and recovery capacity, these instruments help strengthen the financial infrastructure that communities, businesses, insurers, and governments depend on when resilience matters most — representing impact capital with a clear economic purpose. The result is an investment approach designed to pursue differentiated returns while supporting faster rebuilding, economic stability, and long-term societal resilience.”