ILS capital is “foundational” in reinsurance, grows to $144.5bn with 5-year CAGR 8.3%: Aon

Insurance-linked securities (ILS) capital is now “foundational” within the global reinsurance market according to Aon, with alternative sources of capital now accounting for $144.5 billion of sector funds, with that figure rising by $3.5 billion just in the second-quarter of 2026.

The latest insurance-linked securities market report from Aon Securities, the investment banking, structuring and broker-dealer unit of the company, highlights continued strong growth of catastrophe bonds and the broader ILS market, taking sector capital to a new high.

At the end of the first-quarter of 2026, Aon Securities had estimated alternative capital in reinsurance, so that deployed through insurance-linked securities and related collateralized structures, had reached $141 billion, having grown 4% since the end of 2025.

Now, the figure has risen again, to reach $144.5 billion at June 30th 2026, as estimated by Aon, a further roughly 2.5% growth in the last quarter.

While the growth rate slowed, it’s important to remember that even as cat bond issuance activity reached new record-highs, there were also some meaningful early maturities that meant there was also capital ready to reinvest in the period.

Impressively though, the compound annual growth rate (CAGR) of Aon’s figure for alternative and ILS capital in reinsurance now stands at 8.3%.

Today, Aon said that ILS has become “foundational reinsurance capital.”

Richard Pennay, CEO, Aon Securities, explained, “The past 12 months marked an important milestone for the ILS market as it continued to evolve into a source of foundational reinsurance capital for clients globally.

“As the market expands across additional risks and products, it is providing clients with another source of durable capital while continuing to attract investor interest.”

Pennay further stated, “In addition to the market growth, this past year produced transactions which span all lines of the property & casualty reinsurance market as asset intensive sidecar transactions have been executed on behalf of both insurers and reinsurers with some of the world’s largest investors.

“While the market has matured in the past 20 years of Aon producing this report, the pace of innovation remains as fast as ever.”

The ILS market now spans all property and casualty insurance lines, thanks to the ongoing development of new structures such as these asset-intensive sidecars, which typically feature casualty lines or whole-account structures.

While overall alternative or ILS capital has grown at an 8.3% CAGR over the last five years, impressively the catastrophe bond market has grown faster, at an 11.6% CAGR over the last decade.

That growth has cemented the catastrophe bonds role as foundational to many cedent reinsurance towers over the last few years.

While the expansion of ILS capital to support other lines of business is now promising to do the same in non-catastrophe risks.

Pennay concluded, “Looking ahead, the ILS market outlook remains constructive. Clients are expected to continue seeking
efficient, diversified and multi-year capital across a wider range of risks and products, while investors remain focused on disciplined underwriting, transparency and competitive risk compensation. The Relevant Period reinforced that the catastrophe bond market has matured into a durable source of capacity for sponsoring entities and a differentiated source of return for investors. We anticipate considerable focus on the asset driven sidecar structures, as the market proceeds towards 2027.”