In the early days of insurance-linked securities, many people believed that casualty ILS capacity would grow bigger than the cat-bond market, and eventually eclipse it. That’s now looking more likely than ever. Casualty ILS has burst forth with an explosion of deals in the last half of 2025. Its proof-point is close, both as a viable asset class for investors, and as a versatile source of capacity for one of the world’s most fundamental types of insurance.
Product design is improving, and investor appetite is increasing, attracted by double-digit returns. Bulls see a parallel with the exponential growth of the private credit market, now around $3 trillion. Another common and much more achievable benchmark is the life and annuity securities market, which regularly adds multi-billion-dollar, ILS-backed sidecars.
Casualty ILS market size at any point in time is hard to pin down, since a lot of deals stay private and many whole-account ILS sidecars include a sometimes-large casualty element. However, based on public disclosures the casualty ILS market has probably already exceeded $5 billion, up from less than one billion in 2022.
Deal flow gathers pace
Recent deal flow has been pacy. Last week RenaissanceRe, a longstanding innovator in the ILS space, was revealed to be fundraising for a second version of Fontana Re, the original casualty sidecar it launched in 2022. That first-such vehicle reached $525 billion in Q3 2025.
Meanwhile we have seen the launch of multiple reinsurance sidecar syndicates at Lloyd’s, established to assume a share of the sponsoring carriers’ outwards cessions. The details vary, but a proportion at least of the risks ceded to the sidecars’ ILS backers will be of the long-tailed variety.
Earlier in the year MultiStrat, another trailblazer in the casualty ILS field, launched two funds on the scale of “$100s of millions,” and in July, Ascot Group and Antares Capital formed Wayfare Re, a $500m sidecar for Ascot’s casualty book. Together these initiatives alone have added more than a billion dollars to the casualty ILS sector in the second half of 2025.
On the services side, this week Ledger Investing, a casualty ILS specialist re/insurance broker-dealer, spun out its supporting technology operations into a new company to serve the casualty ILS market. Ledger says it has used the platform to structure, execute and service upwards of 170 casualty ILS deals worth about $2.5 billion.
What is it all about?
The capital tends to be deployed through whole account quota share treaties granted by special purpose vehicles. Another way to bring ILS capital to the casualty market is through a dedicated fund which underwrites specific reinsurance contracts through a fronting reinsurer. Both types of structure tend to be backed by savvy investment funds attracted by returns which may run higher than 20%. That is the boost that supports the claim that casualty ILS is uncorrelated with other financial instruments, and particularly that it acts as a balance for nat cat securities.
Meanwhile, recent successful cat bonds issues at lower prices show that investors’ appetite for peak-perils excess of loss risk remains unsated. That is good news for casualty ILS, because the larger the “P” portfolio, the more “&C” is needed for balance.
The long-tail nature of casualty risk has additional attractions. One is predictable cash flow that creates a steady income stream for investors. Premiums for risk such as third-party auto liability tend to roll in with enormous predictability.
The float
That supports the second additional attraction, which any student of Warren Buffet will understand: “the float”. Incoming casualty premiums deliver a stream of money which can be invested elsewhere, and therefore used both to support insurance risk and to back other investments. It is a trick that underwriters at Lloyd’s had been exploiting for centuries before the Sage of Omaha revealed the secret.
Investing in casualty insurance risk has negatives, of course. Serious adverse claims development can transform the float from a balance-sheet asset to a potentially enormous liability. The business is complex, and inherently tougher to understand than traditional nat cat.
To exacerbate that, evolving concerns over litigation and other socioeconomic factors make casualty tough to forecast. The high returns from backing casualty ILS come with a distinctly higher level of uncertainty for investors.
The antidote is track record. ILS investors want to see a solid history of excellent reserving before they invest in casualty ILS. Once they have laid their money down, the extended development period of casualty claims supports more sophisticated reserving and modeling, which allows portfolio understanding to evolve with the book.
Offramps
Illiquidity is another big drawback. Traditional casualty reinsurance offers a promise to pay which is not limited in time. Liability claims in Lloyd’s have been known to attach more than a century after the risk was underwritten (for example, from environmental pollution arising in the 1980s from seepage from railway sleepers installed in the 1880s). For many ILS investors, that is unworkable.
To make casualty conceivable as an asset class for many in the investment community, the deals need an exit. It has to be defined at the outset, since investors need confidence that they will be able to trade out after a reasonable time. In practical terms, that means a mechanism must be agreed at the outset to allow pending claims to fall back to a third party after a specified period has expired. Everyone in the chain, especially including regulators, has to be comfortable with the solutions crafted to allow exit.
Various exit strategies have been proposed and implemented. Most look something like the Reinsurance to Close, which a Lloyd’s syndicate purchases at the end of every trading year. These contracts are based on an estimate of the ultimate value of outstanding liabilities, and specify the transfer of reserves necessary to support open claims.
When the casualty ILS reinsurance vehicle is a Lloyd’s syndicate, the exit mechanism will be exactly that, an RITC. Lloyd’s ILS transformer vehicle, London Bridge 2, has been a vocal promoter of casualty reinsurance ILS sidecars in Lloyd’s. An LB2 protected cell can be used to isolate a portfolio of casualty risk for cession to investors or conventional reinsurers.
Run-off focus
Legacy reinsurers, whose entire business is the pricing and assuming of unexpired books of casualty business, are another source of exit. They are also a major contributor to the recent growth of the casualty ILS market. Enstar’s Scaur Hill Re is a $300 million casualty sidecar ILS vehicle formed and funded in August this year. It extends Enstar’s available run-off capital, and according to reports, provides ILS investors with an optional, pre-priced exit after seven years, and a mandatory close after 10.
One view of the world sees casualty portfolios closed annually, then transferred immediately from the originator, perhaps an MGA and its short-term fronting partner, to an ILS-backed legacy carrier. That model allows all parties in the chain to focus efficiently on their core specialty.
In long tail lines, of course, an old truism holds: only time will tell. The casualty ILS market is a new one, and the claims it has accepted so far have not yet entirely matured. It therefore remains untested. That said, risk carriers with a very strong casualty reserving history and the talent to price liabilities with confidence are likely to gain investors’ confidence. Those able to deliver evidence of such experience and expertise can benefit from an array of products.
Technology-enabled actuaries working hand-in-hand with capital markets teams and reinsurance experts are powerfully equipped to help cedants design and structure solutions that match all the counterparties’ goals and appetites. As the casualty ILS market accelerates along a potentially exponential growth path, now is the time to consider how best to take advantage.
