Insurance-linked securities (ILS) capacity levels continues to grow at a modest pace, aligning with market demand, according to a newly released AM Best report.

Meanwhile, AM Best estimates the property catastrophe bond market at approximately USD $45 billion at mid-year 2024, representing a $3 billion increase.

The Best’s Market Segment Report, “ILS Capacity Grows, as CAT Bonds Issuance Breaks Record” is part of AM Best’s look at the global reinsurance industry ahead of the Rendez-Vous de Septembre in Monte Carlo.

At year-end 2023, Guy Carpenter and AM Best together estimated the capacity of the ILS market at approximately USD $100 billion.

With capacity from maturing deals recycled into 2024 transactions, some capital created out of the record-breaking 2023 earnings was deployed, and a modest amount of new capacity entered the space, according to the report.

“One year of great returns is probably not enough to draw in material amounts of new capacity that would significantly soften the market,” said Emmanuel Modu, managing director, insurance-linked securities, AM Best.

The report also notes that the 144A property catastrophe bond market broke its single quarter issuance record in second-quarter 2024, with issuance of nearly USD $8 billion, beating the record set last year.

Total issuance volume for 144A property catastrophe bonds hit USD $11.9 billion in first-half 2024, the report noted.

Growth is coming from both new sponsors and renewal deal upsizing, according to the report.

Risk-adjusted rate changes in the ILS segment were flat to slightly down overall at mid-year renewals, AM Best said.

Rate decreases in the more risk-remote layers of reinsurance towers were more pronounced, but rates tended to rise slightly at the lower layers of the tower, where capacity is scarcer, the report added.

The dampened rate activity was not unexpected given the strong returns achieved by traditional reinsurers and ILS managers in 2023, as well as the lack of a major peak-peril catastrophe event since Hurricane Ian in 2022.

“Barring a major peak peril loss event in 2024, cedents will have more room to negotiate at the Jan. 1, 2025, renewal season,” said Wai Tang, senior director, insurance-linked securities, AM Best. “However, capacity providers are highly motivated to maintain discipline because the poor returns of recent years are still fresh in their minds.”