Franklin Templeton Investment Solutions, the more hedge fund focused part of the global asset manager, has maintained its strongly overweight conviction on the catastrophe bond asset class, while adopting a neutral stance on all other insurance-linked securities (ILS).It’s important to remember that all other ILS includes private collateralized reinsurance, retrocession and industry loss warranties (ILWs), so essentially private ILS opportunities.As we’ve said in a previous article, Franklin Templeton has begun to move away from the K2 Advisors name for its hedge fund unit, hence its reports focused on the sector now coming under Franklin Templeton Investment Solutions.The investment manager commented on the active period for global losses from nat cat events in the first half of 2025, highlighting that while some events, such as the Los Angeles wildfires, led to material insured losses, others did not have a financial impact on the catastrophe bond market despite their humanitarian toll.

“Nevertheless, the frequency of such events has a material effect on investor appetite and the pricing of insurance risk, particularly as we enter the normally busy Atlantic hurricane season.Despite predictions for a busy hurricane season, it has fortunately been very quiet so far, leading to tighter spreads and higher pricing for cat bonds,” Franklin Templeton notes in its commentary.The investment manager also highlighted the 13% year-to-date increase in total catastrophe bonds outstanding as of August 31, 2025, and noted that total cat bond issuance is on track to reach a record $20 billion this year, which you can For cat bonds, Franklin Templeton’s conviction focused z-score has seen a slight increase Now, the z-score stands at 1.4, so higher, and remains well into the overweight ranking, which begins at a z-score of 1 or above.

Therefore, the manager still sees the cat bond asset class as appealing both from a risk-return standpoint, as well as for the diversification benefits they can offer to investors portfolios.Ultimately, this has led Franklin Templeton to place cat bonds at the highest place of its conviction scores for the fourth quarter of 2025, just ahead of discretionary assets.Franklin Templeton continued: “A combination of tighter spreads and increased competition (due to heightened investor demand) has led us to modestly downgrade the outlook for the ILS strategy to overweight.

“Despite this downgrade, we continue to believe that ILS is an attractive asset class for investors seeking to enhance their portfolios with a relatively attractive risk-adjusted return and diversification through its unique and less correlated profile.” As a result, the conviction score for all other ILS now stands at a z-score of 0.0, which is neutral.Across all ILS assets as a group (so cat bonds and then “other ILS”), the conviction is now overweight, instead of strongly overweight, however this is due to the firm bundling other ILS together and no longer giving specific convection ratings for the other sub-segments, meaning it is catastrophe bonds that are the driver still..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

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