Insurance-linked securities (ILS) capacity continues to reach record levels, according to the latest report by AM Best. The ILS market has grown from niche to established with returning sponsors/cedants. Investors' understanding and confidence in the market has grown.
CAT bond issuance has become routine, as sponsors appreciate another source of capacity, and investors recognise the attractive returns and diversification benefits. The growing market gives investors more opportunities to invest. The market is also expanding with more perils and geographies.
Guy Carpenter and AM Best estimated the ILS market reached $120bn at year-end 2025, up from $107bn at year-end 2024. The 144A property CAT bond market reached $57bn outstanding as of year-end 2025; the year-over-year increase from 2024 is nearly $12bn. 144A property CAT bonds account for approximately half the capacity of the ILS market.
The ILS market is anticipated to grow in 2026, albeit more slowly than in 2025. The earnings from 2025 are projected to flow into new ILS investments in 2026, but investors might take some profits rather than redeploy as the market continues to soften.
CAT bonds have been the major drivers of growth in the ILS space, but the high levels of capacity have led to softening rates for CAT bonds, which could slow the rate of further deployment into this segment. Diversification benefits and expanded peril coverage will also continue as drivers for capital inflow into the ILS market. “As the property CAT market softens, ILS fund managers may continue to look at other risks, such as casualty ILS,” said AM Best.
“Reinsurance demand continues to increase, driven by expanding insured exposures, while the severity and frequency of natural disasters are rising due to climate change. Sponsors appreciate having multiple sources of capital. Traditional reinsurance and the capital markets give sponsors options. Sponsors also appreciate the multi-year capacity provided by the CAT bond market,” the ratings agency said.
According to the report, the capacity for the other ILS segments is estimated to be:
- Collateralised reinsurance: $36bn to $40bn
- Sidecars: $16bn to $18bn
- Industry loss warranties: $4bn to $6bn
- Other CAT bonds (cyber/life & health/private natural cat, etc.): $3bn to $4bn