ILS valuation now a ‘core determinant’ of market credibility, Smyth, Nascent Group

In recent years, the insurance-linked securities (ILS) market has expanded from a niche property catastrophe tool into a broader and more complex asset class, and with that evolution, valuation has also moved from a reporting exercise into a core determinant of market credibility, according to Andy Smyth of Nascent Group.

Smyth, the former EY executive, joined the Bermuda headquartered insurance management, ILS servicing and reinsurance transformer specialist in October 2025 as a Senior Consulting Actuary following Nascent’s strategic investment in his firm, Sephira Risk Solutions Ltd.

“The ILS market has evolved from a niche property catastrophe tool into a broader, more complex asset class spanning collateralised reinsurance, sidecars and casualty-linked structures. With that evolution, valuation has moved from a reporting exercise to a core determinant of market credibility,” Smyth explains in a recent report.

“Historically, valuation relied on observable loss estimates and established models. Today, investors face longer development periods, multi-line portfolios and more complex structures. As a result, valuation is no longer mechanical — it is a forward-looking assessment of loss, capital and structure under uncertainty. At its core, ILS valuation sits at the intersection of actuarial reserving, modelling, investment and structure. The strength of that integration underpins investor confidence.”

Among the core drivers of ILS valuations, ch outlines that both ultimate loss and actuarial judgment valuation comes down to expected loss, but stresses that they both increasingly require actuarial judgement.

As Smyth explains, for property catastrophe structures, this entails developing an understanding of market losses in relation to cedant reserving positions, while also considering all major global events that affect the portfolio. For casualty and more intricate structures, this encompasses an independent evaluation of ultimate loss, a clear provision for IBNR and tail risk, and continuous reassessment as new experiences arise.

Along with this, Smyth also notes that pricing models are a starting point, and not a valuation.

“Over time, assumptions drift due to model updates, exposure changes and emerging trends. In property catastrophe portfolios, this includes evolving views of event loss, industry loss estimates and broader market development. Robust valuation therefore requires independent reassessment and explicit recognition of uncertainty,” he explained.

The actuary also highlighted that ILS valuation must consider expected loss alongside tail risk, remaining limit and collateral release mechanics, all of which directly impact realised returns.

Conversely, Smyth observes that in longer-tail ILS, investment income is a core driver of return. However, he states that valuation must reflect realistic yield assumptions and asset-liability alignment in order to avoid hidden volatility.

To conclude, Smyth observes that valuation encompasses both governance and technical aspects, highlighting how investors anticipate independence, transparency, and a clear expression of uncertainty, all of which are vital for maintaining market credibility.

“ILS has matured into a sophisticated asset class, and valuation has become central to its credibility. It is no longer about reporting a number, but about providing a robust, forward-looking view of loss, capital and structure. Ultimately, continued growth in ILS will depend not just on underwriting performance, but on confidence in how that performance is measured,” Smyth said.