As yields in ILS remain above their historical averages, and underlying risk profiles continue to evolve, maintaining market discipline requires a key focus on instrument format. According to Jordan Nickerson, Co-founder at Icosa Investments AG, navigating the year-end renewals successfully will depend on how effectively ILS managers balance pricing adjustments with contract terms and liquidity.
Speaking to Artemis recently, Nickerson outlined how discipline and consistency in the ILS market is just as much a question of instrument format as it is of investment expertise.
In terms of what topics specialist catastrophe bond manager Icosa Investments foresees ILS markets and alternative capital managers taking into their year-end renewal negotiations, Nickerson highlighted ILS yields as a key area of interest.
“In our view, the central theme is normalisation. Yields in insurance-linked securities (ILS) remain above their historical average, supported by higher collateral returns, but transaction multiples now sit closer to long-term norms than to the post-Ian highs,” Nickerson explained to Artemis.
Another crucial topic that Icosa expects to feature heavily during year-end renewal negotiations is cycle preparedness.
“Softening tends to be gradual; hardening typically happens quickly. When it is driven by catastrophe events, it can coincide with trapped collateral, making sudden rate increases hard to capture. That puts a premium on flexibility and liquidity within an ILS allocation,” Nickerson noted.
He continued: “Hence, we believe discipline and consistency in ILS is at least as much a question of instrument format as it is of investment expertise.”
Turning attention to investor sentiment, Nickerson expects allocators to remain constructive ahead of year-end, albeit increasingly selective.
The executive outlined that Icosa expects liquidity, risk concentration, transparency, and expected return robustness to take precedence over pure deployment volume.
Moreover, to navigate these shifting investor priorities, Nickerson noted that Icosa draws a clear distinction between what he calls Foundational ILS and Evolving ILS.
“Foundational ILS covers cat bonds and private property catastrophe strategies: predominantly low frequency, event-driven, short-tail risk with limited financial-market correlation, the characteristics around which the asset class originally developed. Evolving ILS covers the newer extensions of the market, most prominently cyber and casualty,” Nickerson said.
He continued: “Within Evolving ILS, cyber is a relatively natural extension given its event-driven character, though its behaviour in a truly systemic event remains untested. Casualty ILS is a more distinct proposition: higher-frequency, longer-tail risk in which part of the ultimate return may depend on how capital is invested during the risk period, potentially reducing the diversification benefit that sits at the heart of Foundational ILS.
“We expect appetite to become increasingly differentiated across these segments.”
While industry sentiment indicates that discipline will hold on key contract features at the upcoming January renewals, Nickerson emphasised that he expects the renewal period to still be competitive, particularly if catastrophe activity stays light through the second half of 2026.
“We expect the next renewals to remain competitive, particularly if catastrophe activity stays light through the second half, though not at the pricing pace of the past twelve months, with differentiation by risk quality becoming more important,” Nickerson said.
“The key distinction, in our view, is between price movement and changes in the quality of risk transfer. A lower spread – with other terms and conditions unchanged – can be assessed transparently on a risk adjusted basis; a lower attachment, broader coverage or looser wording changes the nature of the risk itself. Price and structure are not, in our view, interchangeable concessions.
Concluding: “Ultimately, discipline does not mean every term stays unchanged. It means understanding exactly what is being conceded, why, and whether the compensation remains appropriate for the resulting risk.”
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