ILS Capacity Expands Slightly as Catastrophe Bond Issuance Hits Record High

A recent report by AM Best highlights the modest yet steady growth in the insurance-linked securities (ILS) market, aligning with current market demands. The report estimates that the property catastrophe bond market reached approximately USD 45 billion by mid-2024, marking a USD 3 billion increase. This growth reflects both new sponsors entering the market and the upsizing of renewal deals. Despite the market expansion, AM Best emphasizes that a single year of high returns is insufficient to attract significant new capacity that could potentially soften the market.

Additionally, the ILS segment witnessed record-breaking issuance of 144A property catastrophe bonds, with nearly USD 8 billion issued in the second quarter of 2024 alone. This robust issuance, coupled with recycled capacity from maturing deals, drove the ILS market capacity to an estimated USD 100 billion by the end of 2023. However, rate changes were generally flat to slightly down, with more significant rate decreases observed in the less risky layers of reinsurance towers.

As the market approaches the Jan. 1, 2025, renewal season, cedents are likely to gain negotiation leverage, provided there are no major catastrophe events.