Rule 144A cat bonds reach 80% adoption as Southeast inverts historical market norms: Gallagher Re’s Schwebach

Property catastrophe reinsurance programs in Southeast US states have undergone a fundamental shift. Far from a supplementary capital pool, the Rule 144A catastrophe bond market has evolved into a fundamental element of regional risk placement, an integration that has inverted historical market norms over the last five years, according to Adam Schwebach, Head of Property, North America at Gallagher Re.

Speaking to Artemis around the key June 1 reinsurance renewals, Schwebach discussed how the ILS and cat bond markets have seen a wave of new entrants and upsized issuances ahead of the renewal season.

“It’s actually getting to the point where it’s a much smaller list of people that aren’t utilising a cat bond or the ILS market in some way, shape, or form,” Schwebach said.

“Almost every client within the Southeast is going to have some form of collateralized or ILS markets on their traditional program, but at this point, I would say 80% plus are also utilising the Rule 144A cat bond market as part of their traditional placement as well.”

This transition represents a total inversion of the historical market norms. “That has really flip-flopped,” Schwebach observed. “It was probably 20% in that market five-plus years ago, and now we’re getting to the point where 20% aren’t.”

He continued: “Every year has a slightly different dynamic between the traditional market and the ILS market regarding who’s driving the pricing and who’s being driven, and that can even change during the renewal period.

“If you were to look at the early part of the 2026 renewals, the cat bond market pricing looked incredibly attractive versus where people expected the traditional market to be, so there were absolutely upsized placements and pricing tended to be at the lower end of the ranges. As we progressed into the mid-year renewals, there was a lot more parity in pricing expectations between the two markets.”

However, as the executive explained, this works to the benefit of the cedants, as they’re able to look at price discoveries between both options and weigh both the pros and cons.

“You have re-instateable limit versus single-shot, LAE factors and how those play in, and multi-year versus single-year coverage. It gave our clients a lot more to think about and chew on as they were figuring out the right mix, but it was a very healthy give-and-take between the two markets this year. At the end of the day, both played an absolutely vital part in the process, leading to very sizable rate reductions in Florida and the Southeast this renewal cycle,” Schwebach added.

Furthermore, with non-life ILS assets climbing to a record $135 billion at year-end 2025, a 19% increase year-on-year, Schwebach explored how heavily this influx of alternative capital is driving the current softening trend for the mid-year renewals compared to traditional capacity.

“It would be hard to say ILS is driving a disproportionate share of the softening because of where it tends to play in programs,” Schwebach noted.

He added. “It tends to be a little bit more top-heavy, so there are certainly markets that would feel it was driving pricing more. But broadly, we saw very similar softening across programs this year, from bottom layers to top layers.”

This uniform softening stands out as a unique market anomaly. “Historically you would tend to see top layers softening faster than bottom layers. We didn’t see that this year, so I don’t think we can point solely to the ILS market for that,” Schwebach noted.

“Equally, I think people forget that the same traditional reinsurers writing bottom layers of traditional programs are also accessing the ILS market through their own cat bonds, so that could absolutely have a part in it. I don’t think it was necessarily one market versus the other.

“Florida, in particular, is unique because while there’s excess capacity, there is also a dramatically and demonstrably different risk profile within the state post-legislative reform. I think that is probably driving outsized rate reductions more than anything. Loss costs are down in the state of Florida; people are figuring that out pretty quickly, and there is very clear, demonstrable evidence to show that, which is leading to a lot of the rate reductions as well,” Schwebach concluded.

Read all of our interviews with ILS market and reinsurance sector professionals here.