Insurance-linked securities hits record size with robust investor returns

End-2024, capacity in the 144A natural catastrophe bond market surpassed $45b.

The capacity of the insurance-linked securities (ILS) segment reached a record $107b at the end of 2024, driven by retained earnings and new capital inflows, according to a report by AM Best and Guy Carpenter. 

The increase was supported by two consecutive years without significant catastrophe losses, with catastrophe bonds showing the most growth. 

By the end of 2024, capacity in the 144A natural catastrophe bond market surpassed $45b.

AM Best’s director of ILS, Matt Tuite, said the strong returns in the catastrophe bond segment could boost investor interest in other forms of ILS. 

The report noted that catastrophe bonds often serve as an entry point into the broader ILS market.

Capacity in the sidecar space increased to an estimated $8b to $10b, whilst industry loss warranty capacity remained flat at $5b to $7b. 

Collateralised reinsurance capacity was estimated at between $45b and $50b, with ILS managers anticipating further growth after two years of solid investor returns.

At the January 1, 2025, renewals, property catastrophe capacity exceeded demand, leading to overall risk-adjusted rate decreases. 

The Guy Carpenter Global Property Catastrophe Rate-on-Line Index fell by 6.6% at the renewals, contrasting with a nearly 30% increase two years earlier when demand was high and supply limited.

Retro capacity remained widely available after another loss-free year, resulting in rate decreases of 10% to 20%. 

Capacity was also ample in the upper layers of reinsurance towers typically covered by catastrophe bonds, influencing the pricing and sizing of cat bond deals throughout 2024, according to Wai Tang, AM Best’s senior director of ILS.