Is activity in insurance-linked securities (ILS) the future or just a fad? That is the question being posed by Willis in its latest ILS Market Update.

The global broker believes “a more permanent shift” towards collateralised reinsurance may be under way.

“End investors (mostly pension funds) who have supported ILS funds for some time have become increasingly comfortable with reinsurance risk,” Willis says.

However, it notes “the investor base is not static” and the result will be greater transparency in the market.

“New pensions, endowments, high-net-worth investors and others are coming into the ILS space and… some long-time end investors who have historically participated through funds (or funds of funds) are… investing directly in whole or in part as the asset class continues to grow. With these shifts, transparency (are you getting what you think you are getting as an investor?) and liquidity will become more important.”

Willis says the question of permanence or fad may not matter as “competitive tension” continues to provide ceding companies and investors with “ample product choice both to cede risk and invest”.

The Cayman Islands is the leading domicile for catastrophe bonds, accounting for 90% of all those issued since the mid-1990s to 2012. Bermuda has emerged as the preferred domicile for new ILS vehicles in recent years: this year more than two-thirds of the global cat bond capacity has been issued from Bermuda.