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Best’s Market Segment Report: Disciplined Deployment of Capital Pays Off in Record-Breaking Year for Insurance-Linked Securities Market

Sustained strong pricing levels for reinsurance capital was among the factors that helped generate a record-breaking year for the insurance-linked securities (ILS) market in 2023, according to a new AM Best report.

The Best’s Market Segment Report, “Disciplined Deployment of Capital Pays Off in Record-Breaking Year for ILS,” also cites additional factors such as the lack of a major peak peril insured loss event, sustained efforts to de-risk ILS portfolios from frequency risk and favorable loss reserve development on Hurricane Ian and Hurricane Ida claims.

Rate increases during the Jan. 1, 2024, renewal season were more muted than last year, and risk-adjusted spreads have started to narrow, amid the disciplined deployment of capital by providers.

“Capital inflows have mostly matched the growth in reinsurance demand rather than exceeded it,” said Emmanuel Modu, managing director, insurance-linked securities, AM Best. “The available supply of capital is often being directed to the more remote layers of risk, making low-attaching, frequency-driven coverage still difficult to obtain.”

The supply of ILS capital grew in 2023 as a result of the heightened demand for reinsurance capital. Guy Carpenter and AM Best estimate total ILS market capacity at about USD 100 billion at year-end 2023, which is up about USD 4 billion from a year earlier. AM Best estimates the outstanding property cat bond market size at approximately USD 42 billion, but the remaining segmentation is difficult to estimate precisely, according to the report. Sidecar capacity is estimated as being largely unchanged, at USD 5 billion to USD 7 billion. Industry-loss warranty (ILW) capacity is estimated at USD 5 billion to USD 7 billion, with cedents less reliant on this type of capital at the January 2024 renewals because ultimate net loss retro providers stepped up to provide capacity.

The report also states that in 2023, ILS investors experienced the highest returns on record, citing the Swiss Re Global Cat Bond Index’s posted return of 19.69%, and Eurekahedge ILS Advisers Index, 13.97%, which beat the previous records set in 2007 (15.43% and 13.22%, respectively).

Catastrophe bonds have generally performed better than collateralized reinsurance in recent years, partly because collateralized reinsurance contracts have had lower attachment points. “But collateralized reinsurance strategies have also been de-risking, by raising attachment points and tightening terms and conditions,” said Wai Tang, senior director, insurance-linked securities, AM Best. “Results in 2023 vindicated that approach, allowing collateralized reinsurance strategies to post record returns despite global insured natural cat losses exceeding USD 100 billion.”

To access this market segment report, please visit

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit

Copyright © 2024 by AM Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.


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