Global pension funds are increasingly eyeing the insurance-linked securities market looking for higher yields and portfolio diversification, sparking talk of a new wave of institutional capital that could reshape the sector.

However, industry experts said that educating these investors on ILS would also be key to making the influx work.

At yesterday’s “When Markets Shake, ILS Holds” panel at ILS Bermuda Convergence 2025, held at the Hamilton Princess & Beach Club, senior executives said interest was rising far beyond traditional reinsurance hubs.

“Definitely pensions, both in North America, which are very large cheque writers, but we’re seeing pensions in Peru and Chile look at this. We’re seeing pensions in Mexico look at this. We’re seeing the Apac [Asia-Pacific] community really grab a hold of this, and of course, the European Community as well,” said Dan Conklin, Alternative Capital Partners Americas, Swiss Re.

“But I think in terms of dollar size and amount of cheques, the pension community is really taking a hard look at this and it will be interesting, because a flood of hundreds, or if not billions, of capital is an interesting predicament that I think we all are working to figure out.”

Another panellist, Joe Tolen, senior investment director — credit investment group, Cambridge Associates, noted that “the size of institutional money dwarfs what’s currently in ILS, so even a moderate allocation shift has the power to reshape the market’s dynamics.”

He said the opportunity for growth was major but added that transparency and education would be key to meeting pension investors’ expectations.

He highlighted that he said he spoke to representatives of a $40 billion public pension plan in Indiana, “where we had a sophisticated board, but not a sophisticated investor. A sophisticated board made up of firefighters, teachers, judges. They had a lot of questions on ILS, despite it being a very small portion of the overall defined benefit portfolio,” he said. He noted that they ultimately “threw up their hands” at the plan.

While the panel was upbeat about the opportunity for pension inflows, some urged caution.

Darren Redhead, chief executive of Perren Capital Management, questioned whether catastrophe bonds — the instruments most pensions favour — are truly as liquid as they appear. “Is it a liquid instrument? Is it an urban myth? If you look at how much is actually traded, the $50, $60 billion per year… I’d come with a health warning to people on that point in that [it’s] not really liquid.”

That warning pointed out the need to make sure expectations align with the risks.