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You can invest in insurance-linked securities (ILS) through funds, or—where you qualify and have access—through direct or privately placed transactions. Before choosing a route, check what risks the vehicle actually holds and how you could exit: an exchange-traded share may be easier to trade than its underlying catastrophe bonds or reinsurance contracts, but that does not guarantee a sale near net asset value (NAV) or prevent losses after a qualifying event.
What insurance-linked securities are
ILS are financial instruments whose value is linked to an insurable loss event, as the UK Financial Conduct Authority (FCA) put it in its PS17/24 policy statement. They transfer some insurance or reinsurance risk to investors. Catastrophe bonds are the largest segment, but ILS is a broader family of exposures.
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Catastrophe bonds and other property-risk structures
A catastrophe bond can transfer defined risks—such as hurricane, windstorm, or earthquake losses—from an insurer or reinsurer to capital-market investors. Its contract specifies the conditions under which principal or interest may be reduced. Other structures include quota shares, often called reinsurance sidecars; collateralized reinsurance; industry loss warranties (ILWs); and event-linked swaps. A quota share exposes investors to a share of premiums and losses from a reinsurer’s portfolio; other structures tie returns to the terms of their referenced reinsurance.
Life-linked structures
Some ILS transfer biometric risks rather than natural-catastrophe losses. Higher mortality can increase death-benefit outflows; increased longevity can raise annuity payments. Life securitizations may also address embedded value or reserve financing, so they should not be treated as interchangeable with catastrophe bonds. The National Association of Insurance Commissioners (NAIC) describes catastrophe bonds as the dominant outstanding ILS type while noting life-linked securities tied to mortality, longevity, and medical claim costs.
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Ways to get ILS exposure
Funds offer a route to diversified exposure without asking an individual investor to analyze and access each underlying contract. But funds using the same broad ILS label can hold different instruments and provide different ways to buy or exit. The examples below are not recommendations; check current filings and eligibility rules for the vehicle and your jurisdiction.
| Route | What it may offer | Access and liquidity to check |
|---|---|---|
| Listed catastrophe-bond ETF | Exchange-traded fund shares with catastrophe-bond-focused exposure. The Brookmont Catastrophic Bond ETF (ticker ILS) began operations on April 1, 2025, according to its SEC-filed semiannual report for the period ended June 30, 2026. Its stated objective is current income, with capital appreciation as a secondary objective. | Shares trade on an exchange during market hours, but trading price can differ from NAV. Review volume, bid-ask spread, premiums or discounts, and the fund’s holdings. An SEC-filed supplement dated August 25, 2026, says the fund’s primary listing venue changed from NYSE Arca to Texas Stock Exchange LLC effective September 18, 2026; check the latest filing for the current venue and terms. |
| Interval fund | May combine event-linked bonds with sidecars, collateralized reinsurance, ILWs, swaps, and other insurance-related holdings. | Shares are subject to periodic repurchase offers under fund-specific terms, not on-demand redemption. Check offer frequency, deadlines, amount sought, oversubscription treatment, settlement, and suspension or postponement provisions in the current prospectus. |
| Private or direct ILS | Can provide exposure through contract-specific placements and structured reinsurance transactions. | Access may depend on investor eligibility and specialist underwriting analysis. Transfer restrictions and claim-development periods can make positions difficult to exit. Rules differ by jurisdiction. |
Some funds also use structured exposure. For example, a 2026 SEC-filed prospectus from City National Rochdale Select Strategies Fund describes equity-linked notes and preferred shares issued by segregated accounts, with returns tied to ILWs and catastrophe bonds; it characterizes those structured investments as generally illiquid. That is a fund-specific example, not a description of all ILS funds.
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Eligibility depends on where you invest
Do not assume that a fund or private placement available in one country is available to you. The FCA says the UK Risk Transformation Regulations restrict ILS investment to qualified investors and that ILS should not be sold to retail consumers under that framework. That is a UK-specific rule, not a universal statement about investor access elsewhere. Check local rules, the fund’s current offering documents, and any eligibility requirements before investing.
How to assess liquidity
Liquidity has at least two layers: how readily you can trade or redeem your fund interest, and how readily the fund can sell or value its holdings. A liquid-looking share price does not make a private reinsurance contract easy to sell.
For an exchange-traded fund
- Check trading volume and bid-ask spreads; an exchange listing alone does not establish that trades will be easy or inexpensive.
- Compare the share price with NAV and review how premiums or discounts have behaved.
- Read the prospectus and reports for the underlying holdings, valuation process, and risk disclosures. A manager may have to estimate values for instruments that do not trade frequently.
For an interval fund
- Find the repurchase-offer schedule and the notice deadline.
- Check how much the fund intends to repurchase, what happens if requests exceed the offer, and when accepted repurchases settle.
- Read the provisions allowing an offer to be suspended or postponed. A periodic offer is not a promise that every investor can exit whenever they want.
Look through to the holdings and stress case
Catastrophe bonds may trade in a secondary market, while sidecars, collateralized reinsurance, ILWs, and structured notes may carry transfer restrictions or require a long period for claims to develop. After a major event, loss estimates may change over time, and multiple investors may want liquidity at once. Review how often hard-to-trade assets are valued, what information informs those estimates, and how the vehicle addresses changing loss information. Interval funds may invest without limit in illiquid securities subject to applicable repurchase-liquidity requirements; the fund’s current prospectus sets out the actual terms.
Due diligence before investing
Use the offering documents and periodic reports to understand both the insurance risk and the investment structure. A fund name or headline yield cannot answer these questions for you.
- Read the trigger terms. Determine whether a contract uses an indemnity, industry-loss, modeled, or parametric trigger. Identify the covered event, geography, time window, measurement source, attachment point, and exhaustion point. Check how losses are audited and settled. Depending on the trigger and event, investors can lose some or all of principal and interest.
- Understand the loss model. Ask which model version and assumptions inform expected loss, and how the analysis handles secondary perils, demand surge, climate-related changes, and model uncertainty. An expected-loss estimate is not a maximum-loss figure or a guarantee.
- Map concentration and event overlap. Review exposure by peril, region, sponsor, counterparty, season, trigger type, and maturity. Consider whether one event could affect several holdings at the same time.
- Trace collateral and counterparties. Find out how proceeds are collateralized and invested, and which collateral assets, custodians, counterparties, or special-purpose vehicles stand between you and the underlying risk.
- Check fund structure and exit terms. Identify whether the vehicle is an ETF, interval fund, or private placement. Read its dealing, repurchase, redemption, lock-up, gate, suspension, and settlement provisions, and determine how much exposure comes through instruments the manager regards as illiquid.
- Review credit, leverage, and derivatives. Check whether securities are rated, unrated, subordinated, or below investment grade, and whether the fund may use derivatives or leverage and for what purpose. SEC fund disclosures warn that many reinsurance-related securities are below investment grade or unrated.
- Calculate total costs. Compare management and operating expenses, transaction costs, and any performance fees. Include costs or complexity from fund-of-funds arrangements and structured-note layers; rely on current filings rather than marketing summaries.
- Assess manager and operations. Review underwriting experience, risk controls, valuation governance, claims handling, counterparty oversight, reporting frequency, and how the manager handles contested claims and loss events.
How to read ILS spread statistics
Statistics about new issuance describe the market at a particular time; they are not a forecast of what an investor will earn. The NAIC reported that, in the second quarter of 2025, approximately 62% of catastrophe-bond issuance paid spreads of 5–9%, approximately 21% paid 1–5%, and approximately 17% paid above 9%. The NAIC also reported that expected-loss levels were concentrated below 2% for that quarter’s issuance. These are issuance and expected-loss patterns for Q2 2025—not current yield quotes, realized investor returns, or promises. A spread is not a net return: losses, fees, valuation changes, and the instrument’s contract terms matter.
What diversification can—and cannot—do
ILS exposure can span different perils and structures, but diversification does not assure a profit or protect against loss. Holdings may be affected by the same event, and different funds can have materially different peril mixes, triggers, counterparties, and liquidity arrangements. Evaluate diversification by looking through the portfolio rather than relying on the ILS label or the number of positions.
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