With alternative capital in the reinsurance industry standing at a record $113 billion in 2024, analysts at S&P Global Ratings projects that it will continue to reach new heights in 2025, as it fills gaps left by traditional capital.According to insurance and reinsurance broking group, Aon, global reinsurance capital reached an all-time high of $715 billion on September 30th 2024, which represents a $45 billion, or 6.7% increase from year-end 2023.This also represents a substantial increase from 2022, where global reinsurance capital sat at $575 billion, which included a $93 billion contribution from alternative capital.In a recent report, S&P notes that 2024’s growth was primarily driven by strong retained earnings, unrealised gains on fixed-income securities, and recovering asset values benefiting from declining interest rates.

However, analysts also highlighted that new inflows of alternative capital, led by strong catastrophe bond issuance, contributed to this growth too.“Despite ample traditional reinsurance capacity, alternative capital has also broken records, standing at $113 billion as of Sept.30, 2024.

It remains a key component of the property catastrophe market, complementing cedents’ reinsurance protection needs,” S&P explained.For comparison, while Aon puts alternative reinsurance capital at $113 billion as of September 30th 2024, .S&P continued: “Growth has been fueled by new sponsors entering the market, with investors favoring catastrophe bonds due to their better structures, clearer coverage, and greater liquidity compared to other vehicles like collateralized reinsurance, sidecars, and industry loss warranties.

“We expect alternative capital will continue to reach new heights as it fills gaps left by traditional capital.” It’s worth highlighting that catastrophe bonds have remained the biggest contributor to growth in alternative capital and insurance-linked securities (ILS) over the last two years, which .In recent months, the cat bond market has been executing particularly strongly on price, leaving market participants to discuss a divergence in pricing between capital markets and traditional reinsurance at the higher-layers where cat bonds are most at home.As this trend persists and some re/insurers look to cede more of their reinsurance towers to the cat bond market at this time, there is every chance the cat bond market continues to grow its share over the rest of this year.

Analysts at S&P also noted that collateralized reinsurance and sidecars returned to growth throughout 2024, due to investors making renewed commitments and trapped capital being released from some of these vehicles.“We believe investors will continue favoring well-established and sophisticated risk managers with strong risk-modeling capabilities and a demonstrable track record,” the agency added..

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