Returns drive investor appetite, third-party reinsurance capital increasingly important: AM Best

Solid returns generated by the insurance-linked securities (ILS) market in recent years have encouraged investors to maintain or increase their allocations, leading rating agency AM Best to highlight third-party reinsurance capital as an increasingly important part of global reinsurance capacity.

As we highlighted in a previous article, AM Best and reinsurance broker Guy Carpenter have raised their end of 2025 figure for third-party reinsurance capital, from the previous estimate of $120 billion to now $123 billion, while forecasting continued growth to $130 billion by the end of 2026.

AM Best explained that the growth has been supported by strong investor demand for catastrophe bonds and other forms of insurance-linked securities.

This comes as momentum for catastrophe bonds has expanded significantly over the last year.

Following a record-breaking 2025 where annual 144A issuance reached an unprecedented $25.6 billion, the first half of 2026 also continued this historic pace, setting a new first-half issuance record of nearly $18 billion and lifting the total outstanding market size to an all-time high of approximately $65.6 billion at the end of June.

In addition, AM Best outlined that the ILS market has also benefited from an influx of attractive risk-adjusted returns and the diversification benefits associated with insurance risk.

“Strong market performance has also supported the recycling of investor capital. Returns generated by the ILS market have encouraged existing investors to maintain or increase their allocations while attracting additional capital to the sector.

“As a result, third-party capital continues to represent an increasingly important component of global reinsurance capacity,” the agency explained.

This expansion of the ILS market aligns with broader reinsurance market resilience.

In its report, AM Best outlines that the global reinsurance market entered 2025 from a position of “considerable financial strength” and continued building capital throughout the year, with both traditional and third-party capital reaching record levels

“Traditional reinsurers generated another year of strong underwriting and investment earnings, allowing the industry to retain capital even as companies returned capital to shareholders and pursued growth opportunities.

“At the same time, the ILS market continued to attract investors seeking exposure to insurance risk that remains relatively uncorrelated with broader financial markets,” AM Best said.

AM Best also recently stated that reinsurers are benefiting from maturing partnerships with alternative capital providers, helping them to consistently exceed their capital costs.