The insurance-linked securities market posted another year of strong returns in 2024, with total capacity reaching an estimated $107 billion by year-end, according to a new report from AM Best, ILS Market Posts Stellar Returns Yet Again in 2024. The growth was fuelled by retained earnings and new capital inflows, with catastrophe bonds leading the expansion.

The report, produced in collaboration with Guy Carpenter, found that the ILS sector benefited from two consecutive years without major catastrophe losses. Capacity in the 144A natural catastrophe bond market alone surpassed $45 billion by the end of 2024.

“ILS managers believe that the strong returns in the cat bond segment may intensify the appetite of investors for other forms of ILS,” said Matt Tuite, director of ILS at AM Best.

The study also noted increased capacity in other areas of the ILS market.

Sidecar capacity grew to an estimated range of $8 billion to $10 billion, and industry loss warranty capacity remained steady between $5 billion and $7 billion. Collateralised reinsurance capacity reached between $45 billion and $50 billion, with expectations for further growth after two solid years of investor returns.

A surge in capacity led to a decline in risk-adjusted reinsurance rates at the January 1 renewals. The Guy Carpenter Global Property Catastrophe Rate-on-Line Index, which measures supply and demand dynamics, fell 6.6 per cent at the start of 2025 — compared with an increase of nearly 30 per cent two years ago when demand was high and supply was limited.

“Retro capacity was widely available, coming off another essentially loss-free year, so those deals tended to see larger rate decreases, in the 10 per cent to 20 per cent range,” said Wai Tang, senior director of ILS at AM Best.

“Capacity was also plentiful in the upper layers of reinsurance towers typically covered by cat bonds, a trend signalled in the pricing and sizing of cat bond deals during 2024.”

The report notes the ILS market’s resilience and ability to attract fresh capital while delivering competitive returns for investors. With another year of strong performance, it found that the industry has reason to be optimistic about the continued growth of the segment.