Speaking in Monte Carlo today at a S&P Global Ratings briefing during the annual reinsurance event, Maren Josefs, Credit Analyst at S&P Global, said it may be time to rethink the name alternative capital, as it was really always designed to complement the traditional reinsurance market and in recent years has become increasingly aligned and embedded in the sector.
“I think it’s fair to say that the alternative capital market is actually firing on all cylinders. We’ve seen substantial growth on the cat bond side, in sidecars collateralized Re and ILW’s,” Josefs explained to the audience assembled in Monaco today.
“When we look at where a lot of the growth is coming from, I think the main story, as we have all heard, has been in the cat bond market. After breaking records already in 2023 and 2024, 2025 has also been a record year. We’ve seen the issuance in the first six months of this year equal the issuance of the total of the 12 months last year. So massive growth on that side,” she continued.
Josefs went on to predict that the catastrophe bond market will likely see its first $20 billion year in 2025, something that now seems inevitable without a major market event or disruption occurring.
She went on to discuss the factors that will matter to the alternative capital and insurance-linked securities (ILS) market as it seeks further growth.
“To get there, we need both demand and supply,” Josefs explained. “So looking at the demand side, we all know that the need for risk transfer has been increasing. It’s been pushed by inflation, total insured values are going up, pushed by inflation, urbanisation, climate, variability. So the capital requirements of the insurance and reinsurance companies have been increasing, and therefore more and more are turning to the cat bond market to complement their existing kind of reinsurance programmes.
“On the supply side, as regard, pricing is attractive. ILS is offering attractive returns to investors, but it’s also providing significant diversification in an investment portfolio. If you look at the volatility of severe economic events that we’ve seen in the past, we’ve really seen the market providing some diversification in investment portfolios.”
She further highlighted that pricing remains “at a really good level” compared to years prior to the recent market hardening we’ve seen.
Josefs also noted that, “Alternative capital continues to be a critical source of capacity and has further increased in importance, in particular for the large reinsurers,” referring to their use of collateralised retrocession.
Later in the briefing, Josefs said it may be time to rename alternative capital, given the growth, expansion and integration trends being seen.
“We often, always have to remember that the alternative capital markets is not just looking at the environment in reinsurance, but it’s being compared to other assets classes and the returns you get there. At the moment it’s still a favourable environment, some of the returns you’re getting if you look at the return on collateral added with the risk premium, you’re in the double digits. So still a kind of attractive environment we’re in.
“Interestingly, what we are seeing in the reinsurance market, most of our cohort now have units that they call capital partners. So the reinsurance sector is looking to partner with external capital, and they’re driving the trend of matching the needs of the investor base directly with their needs to risk transfer.
“I think this is a very important point that we have to remember, and maybe it’s time to rethink, the name of alternative capital markets. Because, you know, the premise of that capital has never been to compete with traditional markets, but to complement the traditional markets.
“We’ve definitely seen that trend, and as long as investors understand the risk they’re taking on and they don’t have any surprises, maybe because terms and conditions are softening and they’re taking on risks that they didn’t expect to, that we’ve seen in the past. I think as long as the discipline holds, there’s also room for the capacity to be there.”
