Diversity of reinsurance, cat bond, ILS, aggregate options a strength for insurers: KBRA

In the current softening market environment where reinsurance capital is abundantly available, primary carriers are benefiting from a greater diversity of protection options, across traditional reinsurance, insurance-linked securities and a growing availability of aggregate covers, rating agency KBRA has explained.

KBRA sees this wider range of risk transfer options as “a strength” for primary insurance carriers.

But the rating agency also notes that at this stage of the market cycle, even while protection may be cheaper and more available, carriers should not let their underwriting discipline loosen.

Of course, that point on discipline being necessary goes for the reinsurance, catastrophe bond and broader ILS market’s as well, as the availability of options to deploy capital increases, with carriers buying more.

The rating agency said that, “Feedback from KBRA-rated primary carriers indicates that property-catastrophe reinsurance pricing was 10%-25% lower at the June 2026 renewals, despite well over $100 billion of global insured natural catastrophe losses in 2025 and ongoing macroeconomic volatility.”

Reinsurance rates remain well-above their soft market lows of 2017, which has been driving increasing levels of capital into the industry, KBRA points out.

Strong growth in alternative capital, led by catastrophe bonds but also in other ILS structures, has boosted a growing traditional reinsurance capital base to new highs.

This has also led to greater appetite for risk lower down in reinsurance towers as well.

KBRA said, “In the past few years, reinsurers have also changed their approach to different layers of risk. Even as the reinsurance market softened in 2024 and early 2025, traditional reinsurers maintained a reduced appetite for lower layers of catastrophe programs—the frequency, or working, layers that might be impacted by smaller events or multiple events. In practice, some primary insurers raised retention levels or used captives for lower-tier exposures. Recently, reinsurance capacity has rebounded at lower layers, with reinsurers becoming more willing to compete in this space. This suggests continued movement towards a more favorable pricing market for primary insurers.”

In addition, greater appetite for frequency or aggregate covers are also evident in 2026.

“After a long absence, aggregate and multievent covers reappeared prior to the 2025 hurricane season, providing another valuable tool for primary insurers to manage frequency risk,” KBRA said.

However, “Lower reinsurance costs are credit positive only if cedants preserve risk-adjusted rate adequacy, maintain prudent retentions, and manage counterparty, reinstatement, and exhaustion risk,” KBRA further explained.

Consecutive years of strong underwriting results is a key driver for the growth of traditional reinsurance capital, as well as the expansion of cat bond and ILS assets in the industry.

The rating agency further stated that, “Combined with a robust market for catastrophe (CAT) bonds, primary insurers now have a wider range of options to complete their overall reinsurance programs. From a credit perspective, the increasing diversity of risk transfer—blending traditional reinsurance, CAT bonds, aggregate covers, and, where appropriate, well-capitalized captives—is a strength, as it reduces counterparty concentration and ensures multiple sources of claims-paying ability.”

But, “disciplined underwriting and pricing remain key to maintaining an insurer’s profitability and financial strength,” KBRA points out.

Which also can be extended to include the reinsurers and ILS specialists as well.

Demonstrating sustained underwriting profitability through the cycle becomes key, especially for those looking to retain and attract outside capital.

Of course, what KBRA says about protection buying conditions being attractive also reads across to the reinsurance and ILS market’s, where retrocession is also cheaper and there has been growing evidence of hedging being put in place, including by a number of ILS managers accessing the catastrophe bond market for protection in recent months.