The Japanese market represents a material opportunity for future expansion in non-cat sidecars as the broader non-cat sidecar market continues to grow through an influx of new sponsors and heightened activity, according to Bill Dubinsky, Managing Director and Chairman of Gallagher Securities.Artemis spoke to Dubinsky, who chairs the capital markets and ILS arm of reinsurance broker Gallagher Re, around the launch of the firm’s April 1st renewal report.He shared his insights on the ILS market’s performance at the April renewals, and the factors that could drive 2026 toward another record-breaking year for the cat bond market.To begin, Dubinsky provided an overview of the ILS market around the largely Japan-focused April renewals.

“The April renewals are very oriented towards Japan.When you look at all the activity and the importance of the Japanese market for the cat bond market, it’s material; however, we aren’t as heavily focused on that in our report because the total amount of activity relative to North America is small,” Dubinsky told Artemis.The cat bond market has witnessed an exceptionally busy start to the year Given this, we asked Dubinsky whether Gallagher Re anticipates that 2026 could surpass last year’s landmark record of over $25.6 billion total issuance across Rule 144A and private cat bond transactions.

“In our view, we anticipate that catastrophe bond issuance will match or exceed last year’s record.Growth is being driven by positive structural shifts and a favourable market cycle.However, because spreads have already declined quite substantially year-over-year, we don’t expect the same level of spread contraction this year,” the Chairman said.

“The ultimate capacity of the market will depend on how traditional carriers adjust to cat bond spread declines, particularly in non-peak regions.At the margin, that response will determine whether issuance equals or exceeds last year,” he continued.With cat bond pricing softening at a steeper rate than the broader reinsurance market, investors are also beginning to migrate toward riskier tranches in order to maintain yield.

Given this, Dubinsky outlined whether the reinsurance broker expects that this appetite for higher-frequency risk will continue to persist within the cat bond space.“I would stress that it’s only a subset of investors supporting these riskier tranches, but it’s a larger group than we saw last year.There is a limit to this trend within the existing investor base; the money coming from pension funds and high-net-worth investors has some appetite for this, but it isn’t unlimited,” Dubinsky explained to Artemis.

“While we are observing this trend, the entire market isn’t going to migrate away from its traditional center of activity.Historically, the center has been around a 2% expected loss.While there is certainly growing activity above a 4% expected loss, which was much more limited in the past, the bulk of the market remains between 1% and 3%,” he added.

The cat bond and ILS investor base continues to expand and is now very sophisticated and increasingly knowledgeable of the sector.The market has also continued to expand further into perils such as cyber and wildfire.With this in mind, Dubinsky acknowledged that while there is still room to grow in the cyber space, the original market is a little softer right now.

As such, Gallagher Re’s growth projections aren’t what they would have been two years ago, but the Chairman noted that the broker still believes there is plenty of room to grow.“Additionally, the market has been supporting wildfire to a much greater extent in the last six months than prior.These are all promising trends.

We wouldn’t necessarily expect many things to come out of the blue; there is no brand-new peril that we are expecting to enter the cat bond market this year,” he added.Whilst the ILS market remains heavily dominated by property catastrophe, the non-cat space, particularly casualty ILS, has also seen rapid growth in recent years.“Non-cat has been growing dramatically in the last year, probably much more than the cat bond market.

It’s generally in quota share form, whether strictly a sidecar or not, on either a whole-account or more targeted basis.We see continued tremendous growth there.I wouldn’t say it’s just casualty; it’s much broader than that, even though many of the deals are casualty-only.

It’s driven more by the risk and duration characteristics than by whether you call it casualty or another line with similar traits,” Dubinsky explained.“We haven’t yet seen all the activity in the non-cat space spread to Japan, so it hasn’t had the same type of effect there that we think it will increasingly have in the rest of the world.But there’s no reason to think it won’t spread to Japan at a later point,” he continued.

Dubinsky concluded: “Whether this non-cat sidecar activity spills over into cat bond form remains to be seen.We had a third-party motor liability transaction ten years ago that was a precursor to what’s happening now, so there’s room for the cat bond market to absorb some of this risk.However, since this non-cat activity involves a different group of investors than cat bond investors, it isn’t strictly necessary for market growth for cat bond investors.” ..

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