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AM Best says traditional reinsurance capital matters more than ILS growth
AM Best estimates third-party reinsurance capital rose to $123 billion by end-2025, projected near $130 billion by end-2026, and says capital supply outpaced demand by more than 25% at mid-year renewals.
AM Best says the growth of insurance-linked securities, boosted by record catastrophe bond issuance, has contributed to softening in the reinsurance market, but that the deployment of traditional reinsurance capacity has been more impactful. The rating agency argues that even though ILS capital has expanded quickly, the traditional market’s dollar growth is larger. In its analysis, AM Best and reinsurance broker Guy Carpenter estimated third-party reinsurance capital increased to $123 billion by the end of 2025 and is projected to reach around $130 billion by the end of 2026. AM Best also notes that the ILS market’s growth rate has outpaced traditional dedicated reinsurance capital, but the absolute dollar increase in the traditional market still exceeds ILS growth by a wide margin. AM Best adds that traditional reinsurers can potentially stretch capacity by leveraging their capital bases, while most ILS capital is described as matching risk dollar for dollar. The agency says when traditional reinsurers become more competitive, it can accelerate the pace at which reinsurance pricing softens, beyond the steadier build-up of ILS capital. Looking at market conditions, AM Best points to abundant traditional reinsurance and ILS capital driving buyer-friendly mid-year renewals. It estimates capital supply surpassed demand by more than 25%, contributing to further declines in reinsurance pricing, and cites record catastrophe bond deals that were regularly oversubscribed.