Despite reduced expected returns, ILS investor appetite has not retreated: Wakefield, Gallagher Re

Even as spreads have compressed by roughly one-fifth and expected returns have fallen, Tom Wakefield, CEO of reinsurance broker Gallagher Re has said there is no sign of investor appetite retreating at this time.

Inflows of alternative capital into reinsurance have persisted and these continue to expand beyond natural catastrophe risks, the CEO explained in the broker’s latest reinsurance renewals First View report.

While catastrophe bonds remain a significant driver of rising capital levels in reinsurance, for property catastrophe risks, Wakefield highlighted expansion of the ILS market into other lines of business.

“Third-party capital is increasingly being put behind casualty and a broader range of lines, and that activity has remained elevated in 2026,” he said.

Commenting on the cat bond market, Wakefield added, “Catastrophe bond issuance has run at or ahead of last year’s record pace and spreads have compressed by roughly a fifth, yet investor appetite has not retreated as expected returns have reduced.”

He added that, “ILS and traditional markets are increasingly comparable, providing greater flexibility for cedants and the ability to optimize their spend across both.”

Capital levels in reinsurance continue to outpace new demand for protection, which means certain parts of the market are being pressured by the weight of inflows.

While the, “volume of capital seeking risk and falling rates paint one picture,” Wakefield said there is more to the story.

He does not believe the exuberance of previous soft cycles are being seen yet, even though terms are clearly now moving at a pace.

“Pricing is converging towards technical adequacy rather than overshooting it. Discipline remains visible, and reinsurers have continued to reward cedants who hold the line on deductibles and structural integrity,” Wakefield explained.

Property catastrophe reinsurance rates remain adequate in many corners of the market, with average rates-on-line still much higher than their last soft market trough.

But those same reinsurance rates are now meaningfully lower than they were just two years ago when the market was it is recent hardest, while the trajectory and direction of travel looks set to be down, absent some kind of major market moving loss or event.

Wakefield said, “Overall, we know a healthy, in-balance reinsurance market provides better outcomes for all involved. It allows for greater stability year on year and availability to respond to emerging risks and shifting conditions.

“As participants in this market continue to best judge the future level of risk they are exposed to, we are at a point where capital availability and problem solving are facilitating the return of more creative solutions at palatable price points.”

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