Analysts at Moody’s Ratings expect the alternative reinsurance capital space to continue to expand over the long-term, stating that much of the growth will come from reinsurers with additional growth expected from non-catastrophe risk, as the rating agency shifts its outlook on the global reinsurance sector to stable from positive., citing improved risk/return dynamics in the market.A year later, and the company has shifted its outlook back to stable, noting that pricing for property reinsurance is declining as the supply/demand balance shifts back toward buyers.The ratings agency also highlights that the abundance of capital in the traditional reinsurance sector and capital inflows to alternative markets, notably cat bonds, are also driving prices lower.

In its report, Moody’s discusses the growth of the expanding alternative capital sector, highlighting that since the end of 2022, the total amount of alternative capital has increased by around 24% to roughly $115 billion, according to re/insurance broker Aon’s estimates, which finds that alternative capital now accounts for 16% of the estimated $720 billion of global reinsurance capital.As we’ve reported extensively throughout 2025 and highlighted in our , alternative capital growth has been driven by the cat bond market, with year-to-date 2025 issuance already surpassing the previous record set in 2024.“Since insurance-linked securities effectively provide “swing capacity” in the reinsurance market, they can tip the supply/ demand balance for property catastrophe reinsurance to an oversupplied capital position, putting additional pressure on pricing.

This dynamic has been evident during the 2025 reinsurance renewals and may pressure pricing again in 2026,” said Moody’s.The ratings agency also reveals that it expects the volume of alternative capital to continue to increase over the long-term, although may vary from year to year, with much of the growth expected to come from reinsurance firms as the asset class is now firmly embedded into their risk and capital management frameworks.The ILS space is still heavily focused on catastrophe risks, but non-cat exposures such as casualty are seeing greater interest from investors as they look for lower volatility return profiles and differentiated investment strategies, and Moody’s expects additional growth in the alternative space to come from non-cat risks.

Earlier today, Moody’s analysts met with the media to discuss the global reinsurance market, and James Eck, Vice President, Senior Credit Officer, provided some more insights on the alternative capital space, specifically around cat bond competition in top layers of programmes and whether he envisions a world where reinsurers try to play lower down.“I think a lot of the reinsurers do play sort of in those lower layers, because you can get a lot of premium, but then you have to make sure that you’re managing that exposure in terms of retroceding it out, and that’s where alternative capital has played an increasing role in recent years.There’s not a lot of balance sheet reinsurers providing retro.

There are affiliated sidecars.They can use cat bonds to get aggregate retro coverage on sort of an index basis, has been common.“So, I think, depending on the company and their preference on how they allocate their capital, some reinsurers will play far out risk remote.

A lot of others will play further down just because they feel the risk-adjusted returns at that level is better than putting a lot of your capital in those risk remote layers, where it’s more binary.” Salman Siddiqui, Associate Managing Director at Moody’s Ratings, expanded on Eck’s comments, saying that if you think about where ILS plays at the moment, in the higher layers, there is appetite to move down but the issue is that this comes at an increasingly higher cost.“In those risk remote layers, you take an EP curve, you price off of it, it’s commoditised.So, you can take that modelled approach, but when you come into those, what I would say quasi attritional layers, those middle layers, that’s when you really do need to do a lot more underwriting and risk management.

One of the things that reinsurers pride themselves on is their relationship with cedents and helping them become better underwriters themselves, helping them manage risks.That’s all part of the package that reinsurers offer.An ILS fund would not offer that at the moment.

So, if they want to move into these lower layers, they need to start thinking about it’s not just a commodity at that level,” said Siddiqui..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.