Cat bond demand extremely strong, collateralised reinsurance returning: Gallagher Securities

For various buyers of protection, the insurance-linked securities (ILS) market remains an integral part of their overall reinsurance purchasing decision, and demand for the catastrophe bond product was extremely strong in 2024, while demand for collateralised reinsurance is also returning, according to Gallagher Securities, the insurance-linked securities (ILS) and capital markets division of reinsurance broker Gallagher Re.

The reinsurance broker’s 1st View January renewals report highlights a robust ILS marketplace, characterised by extremely strong demand from both new and repeat sponsors of catastrophe bonds, which led to record cat bond issuance once again in 2024.

The impacts of hurricanes Helene and Milton in the US failed to directly impact the cat bond or collateralised reinsurance sectors, and while the events did drive some investor caution around the flood peril, Gallagher Re feels that the 2024 catastrophe activity “will not discourage further fundraising in this space.”

“As such, capital supply remained very strong, with some ILS fund managers raising capital and more investors coming into the space,” explains the reinsurance broker.

This isn’t too surprising when you consider that the cat bond asset class was the highest yielding hedge fund strategy in 2023, returning an impressive 20%. And, 2024 is poised to return nearly as much for investors, and as mentioned previously, was a record issuance year with a new annual high of $17.7 billion, according to data from Artemis, our ILS-focused sister publication.

2024 also saw a rise in the use of parametric triggers when compared with 2023, while parametric sidecars and collateralised reinsurance transactions also featured in the year.

The growth in cyber cat bonds was also notable in 2024, an area Gallagher Securities, the reinsurance broker’s ILS arm, has played a key role in.

“The need to expand investor participation is critical to market development with demand also growing: the market has gone from no cyber cat bonds a couple years ago to six outstanding cyber cat bonds, with USD785M from four different sponsors – with additional sponsors looking to support cyber cat bonds in future,” says the firm.

Beyond the cat bond sub-sector of the alternative reinsurance capital space, Gallagher Re reports that demand is also returning for collateralised reinsurance.

“In addition, we have witnessed increasing efforts to expand solutions outside of cat bonds and property-related collateralized reinsurance, such as the development of casualty sidecars,” says the broker.

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