Global: ILS market posts stellar returns again in 2024
Source: Middle East Insurance Review | Apr 2025
ILS capacity grew during 2024 reaching a record $107bn by year end, according to Guy Carpenter and AM Best estimation. Retained earnings and new capital inflows drove the capacity growth, both of which were helped by two consecutive years in which ILS did not incur material catastrophe losses. CAT bonds again saw the greatest growth. By year-end 2024, capacity in the 144A Nat CAT bond market hit more than $45bn.
AB Best said that ILS managers believe that the strong returns in the CAT bond segment may intensify the appetite of investors for other forms of ILS. CAT bonds may serve as an entry point into the broader ILS market, from which investors may go on to explore opportunities to invest in other forms of ILS, such as private deals, for example.
One area where that may be happening is in the sidecar space, where capacity also increased and is estimated to range from $8bn to $10bn. Rate increases in the primary business underlying these quota-share arrangements have made this ILS segment more attractive.
Industry loss warranty (ILW) capacity was roughly flat, in the $5bn to $7bn range, with the size of this segment dependent on the overall supply and demand dynamics in the retrocession market.
Collateralised reinsurance capacity is estimated to be in the $45bn to $50bn range, with ILS managers hoping for growth in this segment following two solid years of investor returns. Spread compression in the CAT bond market may make private ILS deals more attractive to investors.
Supply exceeds demand at January 2025 renewals
Property catastrophe capacity exceeded demand at the January 1, 2025, renewals, leading to overall risk-adjusted rate decreases. Demand grew as well but not as much as supply did. Coming off two years of strong returns, capacity providers were looking to expand and offered enough capacity to exceed demand at this renewal cycle. Inflationary pressure was less of a driver of demand than in recent renewals, so growth in demand can be attributed more to growth in exposure. However, despite a significant decline, inflation remains above central bank targets in some jurisdictions and may pressure demand at future renewals. M