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Investors can get exposure to insurance-linked securities (ILS) through funds—such as catastrophe-bond ETFs or interval funds—or, where eligible, through direct or privately placed transactions. The right comparison is not just the fund’s trading or repurchase terms: ILS holdings can be difficult to sell, and a qualifying loss event can reduce or eliminate principal and interest. Start by identifying what risks a vehicle holds, how losses are triggered, and when you can actually access your money.
What are insurance-linked securities?
ILS are financial instruments whose value is linked to an insurable loss event. They transfer some insurance or reinsurance risk to investors in exchange for premiums or other payments. Catastrophe bonds are the dominant segment, but ILS is a broader family of instruments.
A contract specifies how a covered event affects the investment. Depending on its terms, a qualifying event may reduce some or all of the principal and interest. The risk is therefore not simply that a security’s market price moves: a covered loss can directly affect the amount investors receive.
Common ILS structures
| Structure | How the exposure works |
|---|---|
| Catastrophe bonds | Transfer defined catastrophe risks—such as hurricane, windstorm, or earthquake risk—from insurers or reinsurers to investors. Payments depend on contract terms and whether a specified event or loss measure occurs. |
| Quota shares and reinsurance sidecars | Share premiums and losses from a reinsurer’s portfolio. Investor outcomes depend on the referenced business and contract terms. |
| Collateralized reinsurance | Provides reinsurance capacity backed by collateral, with the investor exposed to premiums and losses under the referenced reinsurance. |
| Industry loss warranties (ILWs) and event-linked swaps | Make payments contingent on specified industry losses or other event-linked measures. |
| Life-linked transactions | Transfer biometric risks. Higher mortality can increase death-benefit outflows; greater longevity can increase annuity payments. Some life securitizations address embedded value or reserve financing rather than functioning like natural-catastrophe bonds. |
How can you invest in ILS?
For many investors, a fund is the most accessible route to exposure, but funds with an ILS label can hold different instruments and offer different ways to buy or exit shares. Direct or private placements are another route in some markets, subject to eligibility and transaction terms.
#1 Best Overall
| Route | What it can offer | What to check |
|---|---|---|
| Listed catastrophe-bond ETF | Exchange-traded shares and a catastrophe-bond-focused strategy. The SEC-filed Brookmont Catastrophic Bond ETF, ticker ILS, began operations on April 1, 2025. Its stated primary objective is current income, with capital appreciation as a secondary objective. | Current prospectus, holdings, trading volume, bid-ask spread, premium or discount to NAV, fees, and current listing venue. A supplement filed August 25, 2026 says the ETF’s primary listing moved from NYSE Arca to Texas Stock Exchange LLC effective September 18, 2026; confirm the latest filing because listing details can change. |
| Interval fund | A managed portfolio that may combine catastrophe bonds with sidecars or quota shares, collateralized reinsurance, ILWs, swaps, and other insurance- or reinsurance-related securities. | The current prospectus’s repurchase schedule, amount sought, notice and settlement terms, oversubscription rules, and provisions for suspending or postponing offers. Periodic repurchases are not an anytime exit. |
| Private or direct placement | Exposure through a specific insurance-linked contract or transaction rather than a broadly traded fund share. | Eligibility, minimum and transfer terms, trigger definitions, collateral, claims process, and how you could exit before the transaction ends. Specialist underwriting analysis may be needed. |
Access depends on current vehicle terms and the investor’s jurisdiction. For example, the UK’s Risk Transformation Regulations restrict ILS investment to qualified investors; the FCA says ILS should not be sold to retail consumers under that framework. That UK rule should not be assumed to apply elsewhere.
What does fund liquidity tell you—and what doesn’t it?
Liquidity exists at two levels: the ability to trade or redeem a fund share and the ability of the fund to sell its underlying holdings. Those are not the same. A listed share may trade during exchange hours even if its underlying securities are difficult to sell; its price can diverge from net asset value (NAV), and a trade is not guaranteed to occur at a tight spread or near NAV.
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Interval funds use periodic repurchase offers under fund-specific terms. An offer may be limited, oversubscribed, delayed, suspended, or subject to other conditions. Read the current prospectus to learn what the fund promises and what it does not.
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- Share dealing: For an ETF, check exchange hours, trading volume, bid-ask spreads, premiums or discounts to NAV, and whether market makers are active.
- Repurchase terms: For an interval fund, check offer frequency and size, notice deadline, treatment of oversubscriptions, settlement time, and suspension or postponement provisions.
- Underlying holdings: Find out whether catastrophe bonds have an active secondary market. Private sidecars, collateralized reinsurance, ILWs, and structured notes may have transfer restrictions or long claim-development periods.
- Valuation: Review how hard-to-trade securities are valued, how often valuations are updated, and whether estimates might lag new loss information.
- Stress conditions: Understand how the vehicle manages liquidity after a major event, when claims are still developing and investors may seek liquidity at the same time.
Some interval funds may invest without limit in illiquid securities, subject to applicable repurchase-liquidity requirements. A separate SEC-filed prospectus illustrates how a fund can obtain ILS exposure through equity-linked notes and preferred shares issued by segregated accounts, tied to ILWs and catastrophe bonds; that prospectus describes those structured investments as generally illiquid. This is a fund-specific example, not a description of every ILS fund.
What should you check before investing?
Read the latest prospectus or offering documents, not just a fund name or summary. Work through the exposure, contract, liquidity, and cost questions below; the answers determine what risks you are actually taking.
- Identify the trigger. Determine whether it is indemnity-based, industry-loss-based, modeled, or parametric. Check the event definition, covered geography and time window, measurement source, attachment and exhaustion points, and how losses are audited and settled.
- Understand the loss estimate. Review the model version and assumptions used to estimate expected loss. Ask how secondary perils, demand surge, climate-related changes, and model uncertainty are treated. A modeled expected loss is neither a maximum loss nor a guarantee.
- Look through the portfolio. Compare exposures by peril, region, sponsor, counterparty, season, trigger type, and maturity. Consider whether one event could affect several holdings at once; a broad fund label alone does not establish diversification.
- Trace collateral and counterparties. Find out how proceeds are collateralized and invested, and identify the collateral assets, custodians, counterparties, and special-purpose vehicles between you and the referenced risk.
- Check the vehicle’s exit rules. Establish whether it is an ETF, interval fund, or private vehicle. Review dealing, repurchase, redemption, lock-up, gate, suspension, and settlement provisions, along with the share of exposure in instruments the manager considers illiquid.
- Review credit, leverage, and derivatives. Check whether securities are rated or unrated, subordinated, or below investment grade. Read whether the fund can use derivatives or leverage and for what purpose. SEC disclosures warn that many reinsurance-related securities are below investment grade or unrated.
- Add up implementation costs. Compare management and operating expenses, transaction costs, and any performance fees. Account for additional fund-of-funds or structured-note layers where applicable, and use current filings rather than marketing summaries.
- Assess the manager and operations. Review underwriting experience, risk controls, valuation governance, claims handling, counterparty oversight, reporting frequency, and the manager’s approach to loss events and contested claims.
How should you interpret ILS spread figures?
For context, the National Association of Insurance Commissioners reported that, among catastrophe-bond issuance in Q2 2025, approximately 62% paid spreads of 5–9%, 21% paid 1–5%, and 17% paid above 9%; expected-loss levels were concentrated below 2%. These figures describe issuance and expected-loss patterns in that quarter. They are not a current yield quote, an investor’s realized return, or a forecast. A spread is not a promise that compensates for every possible loss.
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