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Fitch forecasts continued ILS and alternative reinsurance capital growth in 2027
Fitch expects third-party capital in reinsurance to reach a new high by year-end 2026, even as reinsurance rates soften.
Fitch Ratings expects the alternative reinsurance capital and insurance-linked securities, or ILS, market to keep growing through 2027, supported by attractive risk-adjusted returns and strong sponsor demand for capacity. The outlook comes despite a backdrop of reinsurance rate softening.
The rating agency said third-party capital in reinsurance has continued to expand in recent years and is anticipated to hit a new high by year-end 2026. In Fitch’s pre-Monte Carlo Rendez-vous reporting, it linked the market’s gradual change to an imbalance between excess capital supply and modest demand growth.
Fitch noted that reinsurance terms and conditions have “marginally loosened,” but it believes attachment points and retentions mostly held. It also said capital levels in the ILS market reached new highs in 2026 so far, driven by strong catastrophe bond issuance, increasing reinsurance sidecar activity, and growth in casualty ILS.
While Fitch pointed to a glut of capital weighing on higher-layer property catastrophe rates at renewals, it does not expect that dynamic to change in the short term. The firm added that it expects returns to stay above cost of capital as long as market discipline continues and the market avoids significant loss events while capital keeps building.