Challenger Life, a large Australian life and retirement income underwriter and investor, has reported that its investments into insurance-linked securities (ILS), which are predominantly catastrophe bonds, beat their benchmark in the last six months of record for the firm.
For Challenger Life, the allocations to cat bonds and ILS are expected to offer “liquid capital and financial flexibility and are expected to have a low correlation to credit and equity markets,” the investor explains.
Over the long term, investor benchmarks the total return from its cat bond ILS investments to the Plenum CAT Bond UCITS Fund Index, and in the last six months the allocation beat that level of return.
Challenger Life said that in the second-half of 2025, which is the first-half of its fiscal year 2026, the insurance-linked investments delivered a benchmark beating return.
The Plenum CAT Bond UCITS Fund Index delivered a 6.98% return for the six month period, which Challenger Life said its general insurance investments, made up of catastrophe bonds and a small allocation to a quota share reinsurance sidecar, outperformed.
Which was a positive contribution to the overall 9.9% return that the investor’s alternatives bucket achieved for the period.
Challenger Life has been allocating to insurance-linked securities (ILS) and other reinsurance related investments, both on the life and non-life sides of the market, for a number of years.
Catastrophe bonds, in particular, have been repeatedly cited as a driver of attractive relative returns by the investor. Challenger once cited cat bonds and ILS as the highest returning asset class relative to the capital requirements needed to support them.
The investor expanded its cat bond investments and added a life settlement allocation as well, while its first reinsurance sidecar investment was added in the financial year to June 30th 2024.
Back at the mid-point of 2021, Challenger Life’s general insurance investments (which were cat bond only at the time) amounted to AU $155 million in size, while its life insurance investments allocation through a settlements strategy amounted to AU $100 million.
The investments into cat bonds and ILS have expanded meaningfully since, and when we last reported as of June 30th 2025, the catastrophe bond investments within Challenger Life’s alternatives portfolio amounted to a valuation of AU $718 million (approx. US $470m), allocated across three investment managers.
Also as of June 30th 2025, the reinsurance sidecar allocation that was first made in 2024 at AU $16 million (US$11m) in size had shrunk down to just AU $7 million (approx. US $4.6m) over the twelve months.
As we explained, that reinsurance sidecar investment was said to be invested in “externally managed special purpose vehicles that predominantly took exposure to first-loss property and casualty insurance risks,” so could have been impacted by the California wildfires in early 2025.
On the life settlement side, Challenger Life’s allocation was valued at AU $80 million (approx. US $52.3m) as of June 30th 2025.
Six months on, not much has changed on the catastrophe bond side, with Challenger reporting this at AU $714 million as of December 31st 2025, which at the time equated to around US $477.2 million. This suggests no additional cat bond investments in the period, but positive carry being earned from them and still three managers allocated to.
The reinsurance sidecar investment fell in value to AU $4 million at Dec 31st 2025, so around US $2.7 million, indicating further erosion of that position first invested in at the mid-year of 2024.
For the life settlement investments, Challenger reported them at a value of AU $3 million at Dec 31st 2025, suggesting these are in the process of being wound down. In fact Challenger had not mentioned any positive performance from the life settlements for some time, with all of its commentary on returns having been related to the cat bond investments in recent years.
In US dollar terms, this means the total insurance-linked strategies allocation of Challenger Life has fallen from around US $527.3 million at the mid-point of 2025, to just under US $482 million as of the end of last year.
Catastrophe bonds continue to make up roughly 20% of Challenger Life’s near AU $3.6 billion alternatives allocation, which remains somewhere north of 2% of the entire investment portfolio of nearly AU $26.5 billion.
Challenger Life is just one of the numerous pension fund and major institutional ILS investors we track in our directories here.
