According to equity analysts from Berenberg, alternative capital and insurance-linked securities instruments have become an increasingly important component of property catastrophe reinsurance limit, notably in the United States as cedants see value in diversified sourced capital.As the annual Monte Carlo reinsurance Rendezvous event in September nears, it’s safe to assume that property catastrophe risk will be a focal topic that’s discussed this year, as insurers and reinsurers will likely discuss the impact of natural catastrophes, including extreme weather events, urbanization, and rising property values.In a new report, the investment bank highlighted how global demand for property catastrophe grew by 10% year-on-year in the reinsurance renewals during the first half of 2025.“We expect this demand to continue rising (largely in the US), driven by increased catastrophe losses, sustained inflationary pressures and revised views of nat-cat exposures, with recent wildfires and floods likely prompting insurers to evaluate loss potential and protection needs,” the analysts state.

Adding: “At the same time, capacity remains ample and exceeds demand; however, this is largely driven by traditional capital.” Moreover, broker Aon previously reported that global reinsurer capital grew by $5 billion to reach $720 billion in the first quarter of 2025, despite the impacts of the Los Angeles wildfires from January, with the main driver continuing to be the retained earnings of incumbent reinsurers.Berenberg’s analysts also pinpointed that while alternative capital is estimated to have remained at a record high of $115 billion, it remained broadly stable year-to-date, with attractive market conditions encouraging existing participants to reinvest profits and new entrants to commit funds.Concurrently, increased investor appetite is also motivating traditional reinsurers to expand their sidecar and/or catastrophe bond programmes, which also enables the deployment of additional capacity.

The analysts write: “The increased reinsurance capacity was more than sufficient to absorb a c10% increase in global demand for property catastrophe limit.The above-inflation increase reflects the insurers reassessment of the potential magnitude of wildfire exposure following the LA wildfires in January, along with additional limits purchased from insurers who have depopulated policies from Florida citizens since the prior hurricane season.“In terms of alternative capital (cat bonds, sidecars, insurance-linked warranties and collateralised reinsurance and other), one theme remains consistent: alternative capital has become an increasingly important component of the overall property catastrophe reinsurance limit, particularly as US cedants see value in diversified sourced of capital.” However, Berenberg’s analysts state that a potential influx of alternative capital is one of the key risks that it identifies for the sector as this could negatively affect the pricing discipline of traditional reinsurance capital, and start a new cycle where participants start compromising on pricing, or even loosen conditions to achieve growth.

“Nevertheless, the bulk of the increased capacity in the space still comes from incumbent reinsurers.Specifically, since 2022, around c85% of the increased capacity in the sector came from traditional reinsurers.This means that the overall terms and conditions are likely to remain firm, in our view, which has positive implications for the overall profitability of the sector,” the analysts added..

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