At the close of 2024, the insurance-linked securities (ILS) market saw its capacity hit a historic $107 billion, fueled by retained earnings and new capital inflows, according to a report from AM Best and Guy Carpenter. This growth comes after two consecutive years without significant catastrophe losses, with catastrophe bonds experiencing the most notable increase.
By the end of 2024, the capacity in the 144A natural catastrophe bond market surpassed $45 billion. AM Best’s Director of ILS, Matt Tuite, noted that the strong returns in catastrophe bonds could potentially attract more investors to explore other types of ILS.
The report highlighted that catastrophe bonds often serve as an entry point for investors into the broader ILS market, providing a foundation for future investments in various insurance-linked products.
In other sectors, capacity in the sidecar space grew to an estimated $8 billion to $10 billion, while industry loss warranty capacity remained steady at $5 billion to $7 billion. Collateralized reinsurance capacity was estimated to range between $45 billion and $50 billion, with ILS managers expecting further growth after two years of solid investor returns.
As the 2025 renewal season began in January, property catastrophe capacity surpassed demand, resulting in a decrease in overall risk-adjusted rates. The Guy Carpenter Global Property Catastrophe Rate-on-Line Index dropped by 6.6% at the renewals, a stark contrast to the nearly 30% rise seen two years earlier, when demand was high and supply was constrained.
In addition, retro capacity remained widely available after another loss-free year, leading to rate reductions of 10% to 20%. There was also ample capacity in the upper layers of reinsurance towers typically covered by catastrophe bonds, influencing both pricing and deal sizes throughout 2024, according to Wai Tang, AM Best’s Senior Director of ILS.
The insurance-linked securities market continues to demonstrate resilience, with robust returns driving substantial growth and expanding opportunities for investors.
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