Alternative capital within the reinsurance market has “not yet reached its full capacity,” according to Guy Carpenter’s CEO of EMEA and Global Capital Solutions, Laurent Rousseau, who said today that his firm anticipates further growth of the ILS and capital markets backed capacity.Speaking this afternoon during a Guy Carpenter briefing held just in advance of the 2025 Monte Carlo Rendez-Vous event, Rousseau also highlighted dynamics in the reinsurance market that could make the end of year renewal negotiations particularly competitive.He explained, “The reinsurance industry is clearly and increasingly in a buyer’s market.We see an acceleration of the softening trends witnessed for the past two years.

“Insurers and reinsurers strategic priority has shifted towards growth.As returns continue to increase, insurers and reinsurers are looking to grow further, both organically and through M&A.“Given the challenging micro environment, it is a time for the insurance industry to shine and show its value-add.” He pointed to a complex and volatile macro environment that will influence the market and for those in reinsurance “navigating that complexity is the challenge of the moment.” “In uncertain times, there is a tendency to focus on the short-term and on local issues.

Whereas reinsurance is all about diversification over time, the long term, and the world, the global risks universe,” Rousseau said.Turning to the reinsurance cycle in property and casualty risks, he explained that this “very much continues this softening which it started in 2023.” Rousseau continued, “Since then, reinsurance capital supply has been growing faster than demand for reinsurance.In view of this context and the current reinsurance landscape, the question is how far and how fast the market will soften in the 2026 renewals.

“This will depend on catastrophe and economic risks through the rest of the year of course.Our current view, is that the likeliest scenario is continued softening in the market.“In particular, it is likely that price increases will accelerate and terms and conditions will broaden, but in an orderly manner.

“As reinsurers push for growth, now is the time for clients to optimise their reinsurance protection.” Rousseau then highlighted that, on the supply-side, traditional reinsurance capital continues to grow thanks to strong underwriting results, retained earnings and higher investment yields.Moving on to alternative capital, largely deployed through insurance-linked securities (ILS) such as the catastrophe bond market, ILS funds and sidecars, Rousseau highlighted continued growth is anticipated.“Alternative capital continues to grow steadily, with more capital deployed in broadening lines of business and geographic areas,” Rousseau explained.

“Financial investors have played an increasingly growing role in the P&C insurance and reinsurance industries, regardless of rates evolution over the past 20 years.“This shows that alternative capital has not yet reached its full capacity and will likely be growing.” He continued to say that, “The current environment is marked by a greater contribution of investment income to capital providers, overall capital return.This has been very visible in the life industry for the past 10 years, but we can see now today, alternative asset managers becoming meaningful P&C capacity providers too, using investment returns to price liabilities competitively.

We expect this trend to continue as a private credit wave transforms the alternative asset management industry.” Rousseau then turned to the demand side and said, “We see the overall demand increasing too, mostly to cover frequency risks and earnings volatility.However, demand increases at a slower pace than capital supply.” Rousseau then highlighted how higher retentions for insurers have had a dampening effect on reinsurance demand.“Ceding less premiums to the reinsurance market is a lever to grow bottom-line earnings.

Increased retentions have already translated into increased volatility.This is the normal cost of business we’ve seen in the past cycles, and we should be expecting to see that to continue, requiring insurers to have scale and diversification to absorb increased volatility,” he explained.Looking at how insurers and reinsurers have been managing the cycle so far, Rousseau said that, “A key question for market participants is how they can keep their successful growth trajectory without deteriorating the quality of their underwriting.

“Excessive and uncontrolled risk appetite expansion is a well-trodden path for our industry over the years.” Rousseau said that reinsurers need to focus on client centricity truly sharing in the fortunes of their clients, leverage risk understanding and insights to deliver what clients want, as well as M&A or external growth.On the adoption of technology and artificial intelligence, where the traditional market has often been rather slow to respond, Rousseau said, “Insights generated by greater data quantity and quality and the ability to process business in a smooth and reliable way will continue to play growing roles.“Alternative capital providers coming from financial market background, bring this nimbleness and ability to act swiftly on data and market signals.” Rousseau, in summing up the briefing, also said, “Reinsurers are uniquely positioned to thrive in a world of heightened uncertainty if they shift from being passive capacity providers to active capital allocators.

“As we see a bifurcation of the leaders and followers strategies in the primary P&C insurance industry, we should expect this delineation to apply increasingly in the reinsurance industry as well.“Opportunities exist for reinsurers to partner with cedents to address volatility and frequency issues.This is particularly important since 2023 when cedents retention levels had to be increased meaningfully.

This is an area of the markets from which reinsurers had significantly withdrawn, and we have seen a re-emergence of reinsurance capacity in this space in the past year or so and expect further momentum here into 2026.“Another key opportunity is in partnering with capital markets.Financial investors appetite for the reinsurance industry continues to grow, with the cat bond market and sidecars reaching record levels year after year.

“Cedents are therefore well-positioned to ensure the secure, high-quality reinsurance with terms and coverages to match and choose their reinsurance partners among those committing to true fortune sharing over the long term.“Appropriately structured reinsurance addressing these concerns is likely to become more prevalent in the market as reinsurers seek to address those issues.”.All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

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