Moody’s keeps stable reinsurance outlook. ILS capital influential, with room to grow

Moody’s Ratings has maintained its stable outlook for the global reinsurance sector, even as pricing conditions continue to soften across the market, particularly in property cat lines. This reflects a decline in traditional reinsurers’ pricing power after three highly profitable years, compounded by growth of the insurance-linked securities (ILS) market.

In its recently published report in advance of the Monte Carlo Rendez-vous, Moody’s states that competition from the alternative reinsurance market is a contributing factor towards the decline of property catastrophe reinsurance prices.

Citing data from broking group Aon, the report notes that since 2025 alternative reinsurance capital and ILS has grown at a significantly faster pace (+18% in 2025) than traditional reinsurance capital (+8%), and now accounts for 18% of the market’s full total.

Moody’s Ratings also said that it sees further growth potential for ILS, particularly catastrophe bonds, with the agency saying that they “remain underrepresented in institutional investment portfolios.”

As highlighted in Artemis’ quarterly cat bond and related ILS market reports, the catastrophe bond market continues to broaden with a record number of first time sponsors entering the space during the first-half of 2026.

“ILS instruments are attractive to many capital market investors because they have low correlation with other asset classes. The growth of alternative reinsurance also reflects increased appetite from investors, including private capital, for long duration non-catastrophe reinsurance risk, particularly via sidecars,” Moody’s explained.

While cat bonds and ILS are influential on the reinsurance market cycle, as ever the weight and excess of capacity in the traditional market is a more significant directional trend.

But with ILS having room to keep growing, the smart re/insurers are already finding increasing ways to leverage capital market investor appetite, particularly through partnership arrangements.

The outstanding market for collateralized reinsurance sidecar structures continues to expand, with recent estimates from Aon putting the market at a new record high of $23 billion in 2026.

Further into the report, Moody’s noted that reinsurers are entering the next phase of the market cycle from a position of strength.

The agency outlined that reinsurers’ robust balance sheets are a key factor supporting the stable outlook.

“The largest reinsurers have high solvency ratios, supported by three consecutive years of robust profit. This has expanded the industry’s capacity to absorb unexpected losses. Reinsurers have over the past two years also improved the adequacy of their overall claims reserves, although further strengthening of US casualty reserves is likely,” says Moody’s

In addition, Moody’s report suggests profits will moderate from recent highs, at a variable pace. Weaker reinsurance pricing is expected to result in a modest deterioration in the sector’s financial performance.

However, the agency noted that combined profits will remain relatively strong in the absence of major catastrophe events, helped by robust investment returns and continued diversification, for example in specialty insurance.

The agency also believes casualty reinsurance prices will continue to rise in the US, although at a slower pace, which according to Moody’s, reflects persistent increases in casualty claims, which remain a key source of risk for the industry.

While reinsurers continue to grow exposure to natural catastrophe risk, despite this, Moody’s outlined that reinsurers have managed to maintain underwriting discipline.

“The industry has tightened policy terms and conditions, notably by raising loss thresholds in treaty reinsurance contracts in 2023, and has largely avoided concessions in recent policy renewals. It therefore continues to report strong financial results despite high catastrophe claims,” says Moody’s

And finally, the agency anticipates reinsurers to hold their position in upcoming renewals, likely prioritising coverage of major catastrophes rather than less severe but more frequent events.

Also read: ILS continues to grow despite softer and more competitive reinsurance market: Moody’s Ratings