The insurance-linked securities (ILS) market reached a record capacity of US$107 billion by the end of 2024, driven by retained earnings and new capital inflows, according to a recent AM Best report.
The report, developed in collaboration with Guy Carpenter, highlights that the ILS segment benefited from two consecutive years without significant catastrophe losses.
Catastrophe bonds experienced the most substantial growth, with the 144A natural catastrophe bond market exceeding US$45 billion by year-end 2024.
"ILS managers believe that the strong returns in the cat bond segment may intensify the appetite of investors for other forms of ILS," says Matt Tuite, director of ILS at AM Best.
The report also notes that catastrophe bonds often serve as an entry point into the broader ILS market. Sidecar capacity increased, estimated between US$8 billion and US$10 billion in the period.
Industry loss warranty capacity remained stable at US$5 billion to US$7 billion, while collateralised reinsurance capacity was estimated between US$45 billion and US$50 billion, with expectations of growth following two strong years of investor returns.
At 1 January 2025 renewals, property catastrophe capacity surpassed demand, leading to overall risk-adjusted rate decreases.
The Guy Carpenter Global Property Catastrophe Rate-on-Line Index decreased by 6.6 per cent at these renewals, contrasting with a nearly 30 per cent increase two years prior.
"Retro capacity was widely available, coming off another essentially loss-free year, so those deals tended to see larger rate decreases, in the 10 to 20 per cent range," notes Wai Tang, senior director of ILS at AM Best.
Additionally, capacity was abundant in the upper layers of reinsurance towers typically covered by catastrophe bonds, influencing the pricing and sizing of cat bond deals throughout 2024.
