Insurance-linked securities (ILS) capacity has reached new highs amid record catastrophe bond issuance, continuing to drive growth in the alternative reinsurance market. This is according to a new report by AM Best, which said catastrophe bonds were routinely oversubscribed in the first half of 2026, following three consecutive years of strong returns for the ILS and broader reinsurance markets.
The performance has left capacity providers with substantial retained earnings and capital available for deployment. AM Best senior director Wai Tang noted that no catastrophe events over the past three years had significantly dented the accumulation.
The expansion of ILS capacity is also contributing to softer reinsurance pricing, with the increase in alternative capital outpacing growth in traditional reinsurance capital at mid-year renewals. AM Best said the property catastrophe reinsurance market experienced another orderly and increasingly buyer-friendly renewal season, supported by abundant capital. Supply was estimated to have exceeded demand by over 25%, according to AM Best director Matt Tuite. This is seen as encouraging capacity providers to accept lower prices as they compete to assume catastrophe risks.
The trend was particularly evident in the catastrophe bond market, where the 144A property catastrophe bond market recorded $17.3bn in issuance during the first half of 2026, surpassing its previous first-half record. Second-quarter issuance reached $11.3bn, exceeding the previous quarterly record set in the second quarter of 2025. AM Best said maturing catastrophe bond capital and retained earnings were redeployed into new transactions, while additional capital also entered the market, further expanding available capacity.
AM Best added that catastrophe losses have remained relatively manageable so far in 2026, although the North Atlantic hurricane season remains a key focus for the market. Looking ahead to January 2027 renewals, the organisation said a central question will be how much further ILS and reinsurance pricing could adjust if catastrophe activity remains relatively benign through the rest of the year.