Underwriting and capital discipline – functions of the strategic ILS playbook: Aditya Dutt, Aeolus

Both underwriting and capital discipline must be functions of the strategic playbook of the ILS industry, according to Aditya Dutt, President of Aeolus Capital Management, who says a key shift in insurance-linked securities is increasing care being taken to manage capital appropriately for investors.

Dutt was representing his company, specialist insurance-linked securities (ILS) and reinsurance investment manager Aeolus Capital Management Ltd., at an AM Best hosted webinar on the reinsurance renewals and market outlook yesterday.

The subject of discipline and the importance it is maintained came up more than once in Dutt’s comments, with the executive seeing promising signs across all sides of the reinsurance market at this time.

During a point in the AM Best webinar where the outcome of the January 2026 reinsurance renewals were discussed, Dutt highlighted some positive signals from the amount of discipline seen in the market, from the Aeolus Capital Management vantage point.

He explained that the signs are that discipline could be maintained as well, as the current state of terms, conditions and attachment points indicates some kind of equilibrium may have been reached on risk-sharing between the primary insurer and reinsurer tiers of the market.

“I would say those changes, to terms and conditions, structural changes in contracts, are so fundamental to reinsurer profitability, almost, if not, certainly on par with pricing, but maybe even more valuable,” Dutt said. “There was actually discipline around preserving terms and conditions, structural provisions at a place that’s pretty close to ‘23, ’24, ’25. You don’t have to try very hard to compare one, 1/1 ‘26 to 1/1 ‘24, ‘25 when it comes to the tightness of contracts.”

Highlighting the importance of this, he added, “That does an incredible amount of work for a reinsurer, in protecting the integrity of the balance sheet and the integrity of profits.”

Another topic that indicates discipline in the market is the fact capital management and capital return are now “an accepted form of cycle management” that is being seen, Dutt explained.

“In the public companies, at least a fair amount of share buyback activity has occurred in our sector. I see that as a really encouraging sign that reinsurers are right-sizing their capital, instead of force-deploying that capital back into the market. They’re choosing, from a corporate finance standpoint, at least the most accretive transaction, which is giving it back to shareholders,” he further stated.

Dutt then said that, “I think capital discipline as well as contractual discipline, to me, are the most encouraging signs for reinsurers. And on the cedent side, the fact that we’ve ended up in an equilibrium where cedents feel that their risk is being adequately covered, and reinsurers feel that they’re being compensated in an acceptable fashion, gives me a lot of confidence that we’ll keep this stasis position for some period of time.”

Asked about what strategic shifts he expects to see from ILS managers in 2026, as market conditions continue to normalise in reinsurance, Dutt again raised discipline as the key.

“I think it’s very important for the whole industry, maybe not just ILS managers, the reason we have cycles in our sector is people’s discipline starts to fade. I think the strategic shift will be an attitude towards capital. Which is, the short-term view is if I let capital go I won’t see it again, I think the long term view, as some of the best companies in our sector have demonstrated, is if I manage capital appropriately I’ll actually get it back when it works the hardest,” he explained.

Dutt continued, “I think the best companies in our sector have demonstrated this over and over  again, and they’ve been incredibly successful doing this.

“But my hope is that both underwriting discipline and capital discipline become functions of the strategic playbook of the ILS industry.”

Dutt further explained that, “Because of our capital structure in the ILS industry, we tend to be very focused on underwriting discipline. We’re a simple capital structure, we just raise money from pension plans and other institutions. We don’t have debt normally, et cetera.

But I think blending those two simple, but difficult to execute principles into your strategy is the challenge I would say our industry has. And that’s not just an ILS comment, that’s the whole industry.”