Beyond Catastrophe Risk: The next phase of ILS growth in Bermuda

Introduction

Bermuda’s insurance-linked securities (ILS) market is entering a new phase of structural and regulatory evolution as sponsors and investors increasingly deploy capital beyond traditional hurricane and earthquake exposures. Market dialogue throughout 2025 has underscored a decisive shift towards diversification, with growing interest in parametric solutions, cyber risk transfer, casualty ILS and other perils that may require and benefit from more sophisticated structuring and governance frameworks.

Looking ahead, market expansion is increasingly characterised by diversification beyond traditional property catastrophe risk. Built over decades through catastrophe bonds, transformer vehicles and special purpose insurers (SPI), Bermuda offers a regulatory and legal environment uniquely suited to supporting the next generation of ILS products.

As the market expands into new risk classes and structural models, with more investors demanding diversification, a central question emerges: how is Bermuda maintaining its position as central to the future of ILS?

Parametric and Special Purpose Insurer evolution

Bermuda’s ILS market is poised for further expansion through the continued evolution of parametric structures and the SPI regime. The Bermuda Monetary Authority (BMA) has indicated that it is in the advanced stages of developing a new, dedicated SPI class specifically designed to accommodate parametric triggers.¹Bermuda Monetary Authority: Consultation Paper ‘New Insurer Class – Parametric Special Purpose Insurer’ 21 January 2026 This initiative reflects the growing demand for alternative risk transfer solutions capable of addressing the widening protection gap, particularly in relation to climate-driven and emerging risks, including cyber.

The BMA’s proposed framework is intended to build on the established success of Bermuda’s existing SPI regime, which is characterised by collateralisation, contractual certainty and the participation of sophisticated entities. The new SPI class, which is currently under consultation, is expected to recognise the distinctive features of parametric insurance, including the use of non-indemnity triggers, potential reliance on swaps and derivatives, and the management of basis risk.

By leveraging these foundations, the BMA aims to provide a bespoke regulatory environment in which parametric products can develop at scale while maintaining Bermuda’s prudential standards.

The BMA has emphasised that a fit-for-purpose parametric framework can play a meaningful role in narrowing the gap between insured and economic losses, particularly as the frequency and severity of natural catastrophe events continues to evolve. By enabling faster and more predictable payouts, parametric solutions offer policyholders enhanced resilience following loss events, reinforcing Bermuda’s position as a leading global hub for ILS innovation.

Cyber Risk Transfer and the Emergence of Cyber ILS

Cyber risk transfer is expected to remain a core growth area for Bermuda’s ILS market, with SPIs increasingly utilised for cyber catastrophe bonds and exploratory parametric cyber structures. The BMA has identified cyber risk management as a supervisory priority, reflecting both the rapid growth of the cyber insurance market and the systemic nature of potential cyber loss events.²Bermuda Monetary Authority: ‘Bermuda Cyber Underwriting Report 2025’

The Bermuda Cyber Underwriting Report 2025 highlights a year of significant expansion and increasing sophistication across the market. In 2024, Bermuda groups and commercial insurers wrote or consolidated approximately US$10.78 billion in cyber premiums, with US$798.75 million of capacity provided through Bermuda-based catastrophe bonds and ILS structures. While market conditions softened, driven by expanded capacity and competitive pricing, loss activity increased, with insurers paying over US$900 million across nearly 94,000 claims and reporting an overall loss ratio of 29%.

Against this backdrop and drawing on market data, the BMA has identified key prudential risks with cyber, including silent cyber exposure, accumulation risk, governance weaknesses and policy wording ambiguity.

Investor appetite for cyber ILS remains measured. While transparent parametric triggers are attractive, market participants continue to exercise caution due to modelling limitations. Nevertheless, as data quality improves, Bermuda is well positioned to support the next phase of cyber risk innovation, reinforcing its role as a global centre for resilient and well-regulated cyber risk transfer.

Expansion of Casualty ILS and Hybrid Structures

Casualty ILS structures are forecast to expand further in 2026 as investors seek diversifying yield and insurers look for multi-year, fully collateralised capacity that sits outside of traditional reinsurance cycles.

Market momentum accelerated notably during 2025. As highlighted by Willis Re,³Willis Re: Article ‘Casualty ILS Bursts Forth’ 11 December 2025, https://www.willisre.com/insights/casualty-ils-bursts-forth/#:~:text=In%20the%20early%20days%20of,dollar%2C%20ILS%2Dbacked% 20sidecars. casualty ILS moved from a developing concept to a demonstrably viable asset class, with a surge of transactions in the second half of the year. High-profile initiatives included the launch of large-scale casualty ILS funds by MultiStrat and the formation of Wayfare Re, a US$500 million casualty sidecar sponsored by Ascot Group and Antares Capital. Collectively, these transactions added over US$1 billion of capacity to the casualty ILS market in a matter of months, highlighting growing investor confidence.

The long-tail nature of casualty risk offers distinct attractions for ILS investors, including relatively predictable premium inflows and stable cash generation over time. In addition, casualty ILS can play an important portfolio-balancing role as investors continue to deploy capital into peak catastrophe perils. However, the market remains comparatively new and largely untested, with claims yet to fully mature. Casualty risk may take some time to truly take off as investor appetite is typically focused on cedants with strong reserving discipline, robust underwriting frameworks and demonstrable expertise in pricing complex liabilities.

As the market continues to scale, Bermuda is well placed to support this growth through its regulatory credibility and experience in innovative structures.

Tokenisation and the Future of ILS Infrastructure

Bermuda was the first mover with its digital asset regime, enacted in 2018. This has rapidly evolved and matured and the BMA is exploring the convergence of tokenisation with Bermuda’s traditional ILS sector.⁴Bermuda Monetary Authority: Discussion Paper, ‘Asset Tokenisation’ 5 November 2025: https://www.bma.bm/viewPDF/documents/2025-11-05-17-14-16-Discussion-Paper—Asset-Toke nisation-5-November-2025.pdf This puts Bermuda in a strong position to engage with tokenised ILS structures in a controlled and legally robust manner. Tokenisation, which involves the digital representation of real-world assets, has the potential to enhance liquidity, reduce transaction costs and enable fractional ownership, offering new efficiencies for traditionally complex ILS products.

The BMA has recognised that tokenisation could improve market access, streamline settlement processes and embed regulatory compliance through programmable features within smart contracts. At the same time, the BMA has emphasised the importance of robust risk management, particularly in relation to operational resilience, investor protection and the prevention of regulatory arbitrage.

Looking ahead, the BMA is also assessing how tokenisation may intersect with broader ILS market evolution, including expansion beyond property catastrophe risks into cyber, mortality and casualty securitisation. As ILS structures become more diverse and data-driven, tokenisation may ultimately support more granular risk allocation and integration with parametric triggers.

Climate Risk Disclosure and ILS Structuring

Climate risk disclosure and analytics are expected to play an increasingly influential role in ILS pricing, trigger design and investor reporting.

In its 2023 discussion paper, the BMA highlighted the material risks climate change presents to insurers operating in Bermuda and proposed that commercial insurers and insurance groups publicly disclose how climate-related risks affect their business models, strategy, risk management frameworks and financial outlook. These disclosures are intended to enhance transparency, improve risk assessment and support more informed capital allocation across the market, including within ILS structures.⁵Bermuda Monetary Authority: Discussion Paper, ‘Disclosure of climate change risks for commercial insurers’ September 2023

Market commentary has echoed the need for a more forward-looking approach. Mark Gibson, Senior Investment Director of ILS at Schroders, and Dr. Benjamin Hohermuth, Senior Nat Cat Specialist, Non-Life ILS at Schroders, noted a growing disconnect between traditional catastrophe models and the evolving climate environment, arguing that ILS portfolios must reflect both short-term volatility and longer-term structural shifts in weather patterns.⁶Mark Gibson and Dr. Benjamin Hohermuth, ‘Climate risk and insurance-linked securities: navigating a shifting landscape’, 27 May 2025, https://www.schroders.com/en/israel/professional/insights/climate-risk-and-insurance-linked-securities-navigating-a-shifting-landscape/ While catastrophe bonds and collateralised reinsurance contracts typically operate on one-to-three-year horizons, the risks they transfer are increasingly influenced by long-term climate trends.

This temporal mismatch presents challenges for pricing and modelling but also creates opportunities for innovation. Enhanced climate analytics, improved disclosure standards and greater integration of forward-looking data are likely to influence how ILS risks are structured and assessed. In this context, Bermuda’s emphasis on climate risk governance positions the jurisdiction to support more resilient and transparent ILS markets as climate considerations become central to investor decision-making.

Summary

The ILS market, which has already undergone a dramatic growth since its inception, is evolving beyond catastrophe risks into a more diversified and structurally sophisticated ecosystem. With regulatory adaptability and deep market expertise, Bermuda is well positioned to remain at the centre of the next phase of global ILS growth.