Flat mid-year reinsurance pricing could catalyse more ILS capital: Autonomous

If the mid-year 2025 reinsurance renewals see relatively flat pricing, commentary from the recent AIFA conference by analysts at Autonomous Research suggests this could be a catalyst for more capital coming off the sidelines and into the insurance-linked securities (ILS) market.

Reporting on what they heard from ILS investment specialists and reinsurance firms at the annual AIFA conference held in Florida recently, the equity analyst team at Autonomous said third-party capital is still interested, but largely seems to remain on the sidelines for now.

“The significant progress reinsurers made over the last two years in strategically de-risking their books and improving underwriting results and ROEs has clearly piqued third-party capital interest in the space,” the analysts wrote.

Adding, “It remains a bit perplexing, then, as to why the market hasn’t yet seen a meaningful entrance of new capital.”

Alternative capital providers, such as private equity, have “purportedly not yet robustly jumped back into the deep end of the market,” the analysts heard from ILS investors and market participants at the event.

But, there are more favourable trends elsewhere, as in ILS there are more positive views on the typical investors such as pension funds who continue to find the asset class a good source of returns that are less correlated with other investment classes.

“That said, broader sentiment on third-parties re-entering the market appears to be warming,” the Autonomous team reported.

In fact, some investors said that a flat mid-year reinsurance renewal in 2025 could be just the catalyst needed to encourage more capital into the reinsurance and ILS market.

Autonomous explained, “Some investors hypothesized that flat pricing at the mid-year renewals may be the catalyst needed for capital to return as the reinsurance market has demonstrated the extended signs of sustainable profitability typically needed to get investors off the sidelines.”

But they added that, “We didn’t get the sense that pricing stability in June/July would open the alternative capital floodgates, but it could certainly turn the taps back on.”

Investors are certainly watching closely how the reinsurance market responds to recent loss activity such as the California wildfires and last year’s hurricanes, with many suggesting the renewals would be hoped to be disciplined and only flat to a little down, in terms of pricing, so continuing recent trends.

Of course the catastrophe bond market has been softening this year, in part due to weight of maturities and capital. So we could see a continuation of the trend for some bifurcation between higher-layer ILS capital and the mid-to working layers of reinsurance towers.

As we also reported on other commentary from the AIFA conference, equity analysts noted mixed views on the mid-year renewal outlook for property catastrophe reinsurance rates, but suggested that there are no signs of overly aggressive behaviour at this stage.