The insurance-linked securities (ILS) market remains in good shape, but opportunities exist to refine terms and conditions in the traditional reinsurance space, where coverage in some areas remains broad, Niklaus Hilti, Chief Investment Officer (CIO) of Euler ILS Partners, told Artemis in a recent interview.
Firstly, we asked Hilti how he rates the health of the ILS space at this time.
“Overall, the ILS market is in a good shape. We see, however, opportunities for further refinement of terms and conditions in the traditional reinsurance market, as coverage remains broad in some areas.
“This was evident during the recent wildfires, where reinsurers absorbed the bulk of the losses, while ILS structures remained largely unaffected,” Hilti explained.
“Sidecar investors were disproportionately affected by the impact, underscoring the importance of careful structuring. Looking ahead, we believe that optimism about sidecars and Lloyd’s syndicates should be weighed against the challenges of persistently high cost structures,” the CIO continued.
Later on, Hilti outlined how he believes that excess capacity is one of the biggest challenges within the ILS space today.
“One of the biggest challenges currently facing the ILS market is excess capacity, which is putting pressure on underwriting discipline. Maintaining a rigorous approach to risk selection and pricing is critical to long-term sustainability.”
He continued: “Furthermore, a comparison analysis of regulator-reported losses and one major index provider’s published numbers indicates that, for certain periods and scopes, the two can diverge significantly, on occasion approaching a two-fold difference.
“Differences in methodology may account for part of this, but clearer reconciliation disclosures would enhance market transparency.”
Turning to the 1/1 renewals, Hilti highlighted the key topics and talking points that ILS markets and alternative capital managers should bring to meetings with investors and cedents as the industry approaches year-end renewal negotiations and the associated fundraising period.
“As we approach year-end renewals, ILS managers must emphasize the unsustainability of shifting toward lower attachment points or expanding coverage into non-peak peril regions. Risks such as flood, severe convective storms, and wildfire remain significantly underpriced. The same applies to aggregate structures: we view rising allocations to these within a portfolio context very critically,” the CIO explained.
Regarding investor sentiment heading into year-end, Hilti emphasized that with interest rates trending lower and equity valuations at historically high levels, traditional asset classes are becoming less attractive, “driving a strong push into alternatives, including ILS.”
Moving forward, Hilti shared his expectations for further ILS market expansion into perils such as cyber, specialty or casualty for the remainder of 2025 and heading into 2026.
“Expansion into longer-tailed lines remains a complex proposition for the ILS market. These risks require a deep understanding of underlying exposures and demand elevated investment returns to remain viable. Cash-flow underwriting in such areas is highly sensitive to interest rate environments and inflation, making sustainability challenging unless rates remain elevated and inflation low to moderate.
“That said, we view cyber as a compelling opportunity, as it continues to carry a novelty premium while also offering attractive diversification benefits,” Hilti said.
As the ILS market continues to grow, an increasing number of investors are looking for deployment opportunities into the space, however Hilti stresses, that within a softening market, selectivity becomes increasingly important.
“Larger managers often face pressure to deploy capital broadly, which can result in exposure across the full spectrum of opportunities, both strong and weak. Many large investors in UCITS structures end up holding a significant share of the market, effectively buying both the good and the bad.
“Investors should be aware of this dynamic and prioritize managers who demonstrate disciplined underwriting and a clear strategy for navigating market cycles,” the CIO noted.
Looking ahead, Hilti shared with Artemis how Euler ILS Partners plans to launch a cyber thematic strategy for professional investors later this year, with additional new products planned for 2026 too.
The CIO also affirmed that the ILS investment manager continues to invest in technology to enhance transparency, efficiency, and portfolio performance.
While on the subject of technology, we also asked Hilti whether artificial intelligence is a priority for Euler ILS, and whether he feels that the ILS market needs to do more to embrace new technologies.
“Yes, technology is a clear priority for us. As highlighted in recent industry panels, there remains considerable room for innovation within the ILS sector. The lack of robust portfolio management tools is prevalent, and overall, the industry operates with a surprisingly low level of automation.
“We see significant opportunities to improve efficiency, transparency, and scalability through targeted investments in technology/AI,” the CIO concluded.
Read all of our interviews with ILS market and reinsurance sector professionals here.
