Third-party capital permanent, increasingly important beyond cat: Flandro, Howden Re

David Flandro of reinsurance broker Howden Re expects alternative, or third-party capital’s important role in the catastrophe space, and increasingly in casualty / specialty lines, to continue.

Flandro, Managing Director, Head of Industry Analysis and Strategic Advisory at Howden Re, discussed the third-party reinsurance capital space in a recent video interview with our sister publication, Reinsurance News, now available to watch in full.

He explained that Howden Re has always been of the opinion that alternative capital “is a permanent and important part of the reinsurance market.”

As regular Artemis readers will be aware, 2025 was another record year for the catastrophe bond sector, an important part of the overall insurance-linked securities (ILS) marketplace, as annual issuance exceeded $20 billion for the first time, hitting a record $25.6 billion from a staggering 122 transactions.

Record cat bond issuance, together with the recent resurgence of the sidecar space, and the robust collateralized reinsurance segment, has seen ILS capital become an increasingly important component of the dedicated reinsurance capital base.

“When you measure dedicated capital the way we do, which is, I think, the most conservative in the market, alternative capital, if you will, now comprises between 20 and 25% of the total capital base. So, it’s an incredibly important part of capital supply, particularly for catastrophe, but also increasingly for specialty lines. And we expect that to continue,” said Flandro.

Interestingly, Flandro told Reinsurance News that the rate of new issuance in 2025 was somewhat of a surprise.

“I’ve always thought of alternative capital as an S curve, where we had a really rapid expansion in the teens, and then in terms of percentage of capital, it was starting to top out. But it didn’t. In 2025, it went up even more, and that’s a sign of the alternative capital markets finding new underwriting channels,” he said.

As mentioned, alternative capital is now increasingly finding its way into non-catastrophe lines, notably casualty, which Flandro noted is an entirely different proposition.

“Cat ILS are a function of low correlation, high expected yield, high expected liquidity, and relatively short duration. Casualty ILS doesn’t have all of those four factors. It has different factors. One of them, which I think is affecting investment into casualty ILS, is currently higher running yields and then differences in inflation expectations and the ability to take on a part of the tail, if you will. And that is actually quite interesting for credit investors and other investors who are looking for uncorrelated assets that can be catered to their own portfolio,” said Flandro.

“So, I think this is a really interesting area. And I know people who are a lot smarter than me who are active in the space and quite sure that it’s going to be a bigger part of the picture in the future. Whether we get a $70 billion inflow into casualty ILS like we did into property ILS during the teens is another question, but it’s clearly an intriguing new asset class,” he added.

The full video interview is embedded below.

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