The amount of non-life alternative reinsurance capital from catastrophe bonds and insurance-linked securities (ILS) grew by a “historic” amount in 2025, with the latest data from Gallagher Re indicating significant inflows and non-life ILS capital rose $21 billion to $135 billion in the year.In the reinsurance brokers latest market report, Gallagher Re explains that the sector faces a supply-demand imbalance due to the weight of capital from traditional and alternative sources.ILS capital growth in 2025 is exacerbating this trend and this is continuing into 2026, as “year-to-date” activity remains strong”, the broker noted.

Gallagher Re does anticipate traditional reinsurance capital growth as likely to slow through 2026, but believes that excess accumulation of capital in the market will continue.“2025 was a landmark year for the reinsurance industry, with reinsurers achieving historic levels of profitability and capital growth,” explained Michael van Wegen, Head of International, Gallagher Re Global Strategic Advisory.On the traditional reinsurer side, Gallagher Re’s reinsurance composite, which tracks the performance of leading players, indicates a 19.3% return-on-equity for the sector in 2025.

Returns are now expected to moderate somewhat, but Gallagher Re still anticipated reinsurers exceeding their cost-of-capital again in 2026, projecting a 14-15% ROE for the composite in 2026 depending on catastrophe loss activity and expecting normalised realised capital gains and reserve releases.Traditional reinsurance capital growth is expected to slow to 4% over the course of this year, but capital levels are expected to continue to build across reinsurance, which the broker says presents “challenges for capital deployment in a softening market.” “While the reinsurance industry has enjoyed several years of exceptional returns, the dynamics of supply and demand have shifted in favor of buyers, as evidenced by rate softening during the January 1 and April 1 renewals,” van Wegen said.“Despite this, the industry remains resilient, with profitability expected to remain well above the cost of equity in 2026.” Recall that, .

By year-end that had reached $135 billion and Gallagher Re’s latest data indicates non-life alternative and ILS capital growth of $21 billion over the course of last year, an 18% expansion of the alternative capital base and the highest growth seen since it began reporting this data.Retained earnings and “historic” inflows into non-life alternative capital and ILS structures drove the capital expansion in 2025, Gallagher Re explained.Traditional reinsurance capital has now grown by approaching 50% since 2022, while non-life alternative capital from the ILS market has grown by almost 41% since that time.

Given the expectation for continued, albeit slower traditional reinsurance capital growth, and still strong ILS market activity, the broker said, “A supply/demand imbalance is likely to persist in the near-term, with capital redeployment a key challenge for the industry, assuming a normalised natural catastrophe environment and stable financial markets.” Overall, reinsurance capital grew 11% in 2025, the second fastest rate since Gallagher Re began tracking the data.Traditional capital grew 10%, versus the 18% historic growth of non-life alternative and ILS capital.“Capital growth was well ahead of revenue growth (+11% vs +1.4%) underlining the imbalance between demand and supply in the market that has become increasingly visible over the past year,” Gallagher Re reports.

The broker further commented on the ILS market, “Non-life alternative capital increased 18%, or USD21Bn to USD135Bn.This was one of the largest increases witnessed in the history of the Reinsurance Market Report.The increase was driven by both favourable returns and net inflows of capital, in particular to support cat bonds.

Over the past year alternative capital has increasingly started to penetrate lines of business such as casualty, beyond the market’s traditional focus on natural catastrophe risk.“We continue to see elevated activity in that area so far into 2026.The material inflow of alternative capital exacerbates the demand and supply imbalance in the reinsurance market.”.

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