Attachment points, portfolio quality to support reinsurance profits in 2026: Euler ILS Partners

Despite the softening of the reinsurance market seen at the January renewals, 2026 is still expected to be among the more profitable years in reinsurance, as still higher attachment points and improved portfolio quality will support returns, according to Euler ILS Partners, the Swiss specialist insurance-linked securities investment manager.

In a recent report, Euler ILS Partners commented on the state of the market as 2026 begins, for both catastrophe bonds and reinsurance investments.

While softening and lower prices may mean returns are reduced compared to the recent hard market years, the ILS manager still sees conditions as attractive for investors.

The main takeaway is one of strong 2025 performance and building capital across the insurance-linked securities and reinsurance markets which has pressured pricing.

But levels remain high enough to continue delivering returns that are historically attractive, depending on loss activity of course, with updates made to contract structures and terms seen as supportive.

In catastrophe bonds, the market grew strongly in 2025, while the average coupon as calculated by Euler ILS Partners fell by 2.9% year-on-year to 7.84%.

However, the ILS investment manager also calculates that the average expected loss declined as well and further, falling 5.3% year-on-year to 2.24%.

Average yield to maturity in the catastrophe bond market is seen at 6.47% as of the end of 2025 by Euler ILS Partners, a decline of 3.4%.

The cat bond market remains heavily weighted to US hurricane risk as of the end of 2025, with Euler ILS Partners estimating the exposure is around 75% of the marketplace.

In addition, the ILS manager believes roughly 28.3% of outstanding cat bonds are sponsored by residual market insurers, coastal insurers and Florida take-out insurers in the United States, which are predominantly US hurricane exposed transactions.

“Sustained issuer appetite and investor demand” are fuelling the growth of the catastrophe bond market, Euler ILS Partners notes.

Cat bonds continued to deliver higher returns at lower-volatility than many other investment categories.

“Cat Bonds have historically delivered strong returns with materially lower volatility compared to other asset classes, supporting an attractive risk-adjusted profile and meaningful diversification benefits,” Euler ILS Partners said.

Turning to the January 2026 reinsurance renewals, which are of course relevant to those ILS managers that allocate capital to private collateralized reinsurance and retrocession instruments, Euler ILS Partners notes that the renewals were met with ample capacity and broadly stable demand.

Third-party capital providers, such as ILS managers, as well as traditional reinsurers were looking to grow their participation at the renewals.

There was a slight increase in reinsurance limit purchased, with notable higher demand in countries such as Italy, Greece and Turkey due to changes in insurance schemes and higher inflation, Euler ILS explained.

But ultimately, the ILS manager believes reinsurance conditions remain attractive and depending on loss activity 2026 could be another attractive year for capital providers.

Euler ILS Partners explained, “Despite the shift toward a reinsurance buyers’ market driven by a benign hurricane season and ample capital, 2026 is still expected to be among the more profitable years for reinsurers in recent history, even after rate reductions, supported by higher attachment points and improved portfolio quality.”