When Louis Bourrousse, CEO of Scor Investment Partners (Scor IP), the asset management arm of the French reinsurer Scor Group, describes the evolution of insurance-linked securities (ILS), he does not overstate the case. The asset class, he says, has moved “from something really niche towards something more known and used by investors,” but it is not yet fully mainstream.
That nuance matters. The ILS market – often referred to as “alternative capital” within reinsurance – has expanded significantly over the past decade. According to Aon data cited in a recent bfinance report, the alternative capital market was estimated at around $121bn in 2025 ( bfinance).
Catastrophe bond issuance alone exceeded $20bn in 2025, a record for the segment. Catastrophe bonds account for approximately 50% of the ILS market.
For institutional investors searching for diversification, the attraction is clear: elevated yields relative to traditional credit and historically low correlation to macroeconomic variables. But as Bourrousse makes clear, the appeal is not simply about returns. It is about understanding the underlying risk.
Elevated Returns, Real Risks
ILS instruments allow insurers and reinsurers to transfer risk to capital markets. In exchange for protecting defined catastrophic events, investors receive premium-linked coupons and collateral income. Structures range from tradable catastrophe bonds to privately negotiated collateralised reinsurance and industry loss warranties.
The sector’s recent resurgence follows a turbulent period. Between 2017 and 2022, repeated natural catastrophes and the pandemic placed strain on models, trapped collateral, and exposed weaknesses in mandate design.
The recovery since then has been notable. The Swiss Re cat bond index rose sharply in 2023, supported by higher interest rates and improved rate-on-line levels, and investor appetite has returned.
Yet Bourrousse resists the temptation to frame ILS as a simple yield play. “Rigid return targets are not necessarily helpful in this sector,” he says. Instead, he argues, risk limits (expected losses) should serve as the primary guardrails for portfolio construction.
Expected loss and tail risk measures are central to this discussion. As the bfinance paper notes, cat bond strategies may target expected losses in the low single digits. More aggressive blended strategies can accept higher expected loss and materially higher tail value-at-risk.
The key, in Bourrousse’s view, is that investors must be explicit about their tolerance for drawdowns before they focus on return aspirations.
Diversification remains the cornerstone of the investment case. The occurrence of hurricanes or earthquakes is not linked to the economic cycle. This independence from macro drivers has historically delivered low correlation with traditional asset classes, making ILS a potential portfolio stabiliser when credit spreads or equity markets are under stress.
Still, not all ILS exposures are equal. Mandate design requires precision. Investors must define constraints around instrument types, peril concentrations, trigger mechanisms and counterparty exposure. For example, indemnity triggers dominate the market but create slower claims development and greater uncertainty for investors, while parametric or industry loss triggers may offer faster settlement but introduce basis risk. In Bourrousse’s words, success “hinges on thoughtful mandate design.”
“For institutional investors searching for diversification, the attraction is clear: elevated yields relative to traditional credit and historically low correlation to macroeconomic variables.”
Insurance DNA
Scor Investment Partners’ positioning is shaped by its parentage. As the asset management arm of a global reinsurer, the firm operates with what Bourrousse describes as a strong alignment between the third-party business and Scor as an investor (i.e., SCOR is invested alongside other investors).
That insurance DNA manifests in several ways. First, there is an ingrained focus on capital preservation and downside management. “Generating recurring returns with a strong focus on capital protection” is how he characterises the investment philosophy.
Second, the team has familiarity with the regulatory and accounting frameworks that govern insurers, particularly in Europe. Solvency II capital treatment, liquidity constraints and IFRS considerations are not abstract topics; they are daily realities. This, Bourrousse suggests, creates a level of familiarity with insurance balance sheet constraints that traditional asset managers may not replicate.
The broader context is also shifting. Total global reinsurance capital – traditional and alternative combined – has continued to grow, with alternative capital forming an increasingly visible share of the stack. This rebalancing reflects the expanding role of capital markets in absorbing catastrophe risk.
Bourrousse sees rated reinsurers and ILS managers as playing complementary roles within the reinsurance capacity, with an evolution of the “risk transfer chain.” Capital markets are now a structural component of global reinsurance capacity. For cedants, this diversifies sources of protection. For investors, it embeds ILS within a broader ecosystem rather than as a standalone niche.
Scor’s position as a reinsurer rather than a primary insurer can also facilitate partnerships. The absence of direct competition with many insurance clients, Bourrousse adds, helps support relationships in third-party mandates.
Climate, Capital and Complexity
The growth of ILS cannot be separated from the expanding global protection gap. Demographic growth, asset inflation and climate-related risk have all increased demand for catastrophe coverage. At the same time, climate change is altering the frequency and severity of certain perils, particularly wildfires and floods.
Bourrousse is cautious about drawing overly simplistic links between climate change and cat bonds. But he acknowledges that the risk universe is expanding and that capital markets have a role to play in meeting that demand. From one perspective, catastrophe reinsurance can be viewed as a tool of climate adaptation, helping societies build resilience by transferring risk efficiently.
Operational complexity remains one of the defining features of the asset class. Liquidity, for example, is highly dependent on underlying exposures. Pure cat bond funds may offer relatively frequent redemptions, supported by a secondary market organised by dedicated brokers, while strategies including private ILS often operate on annual or semi-annual redemptions, with lock-ups and gating provisions reflecting the term of underlying contracts.
Investors must also consider vehicle structure. Pooled funds offer simplicity and established operational frameworks. Separately managed accounts or fund-of-one structures can provide customisation and transparency but introduce additional operational responsibilities, from collateral management to pricing oversight.
Fee models add another layer of variation. While cat bond strategies typically charge flat fees, private ILS managers may use performance-related structures. Flexibility here can widen the opportunity set during manager selection.
Technology is gradually influencing the sector as well. Bourrousse highlights the use of data tools in underwriting analysis and more pragmatic applications, such as streamlining responses to institutional RFPs. While artificial intelligence is not yet transforming catastrophe modelling overnight, its potential to process large datasets and enhance risk analysis is clearly on the agenda.
For all the sophistication and growth, Bourrousse returns repeatedly to discipline. The asset class may have matured, issuance may be at record levels, and institutional appetite may be resurgent. However, ILS remains, at its core, a specialist allocation requiring clarity of purpose. It has moved from niche to investable. It has not become simple.
