ILS Capital Nears $130Bn as Pritzker's Rate Veto Power Signals New Regulatory Risk for Carriers
By The Reinsurance Daily Editorial ·
ILS Capital Nears $130Bn as Pritzker's Rate Veto Power Signals New Regulatory Risk for Carriers
Third-Party Reinsurance Capital Projected for 6% Growth in 2026
Third-party capital in the reinsurance sector is projected to grow by 6% to reach $130 billion by the end of 2026, according to a joint report from Guy Carpenter and AM Best. This expansion follows a mid-year 2024 update where alternative capital had already reached $123 billion, up from $120 billion at year-end 2023. The report attributes the sustained inflow to the strong, non-correlating returns that have attracted new investors and encouraged existing ones to increase allocations. While third-party capital expands, traditional reinsurance capital experienced a slight contraction, settling at $577 billion at the half-year mark. The combined total reinsurance capital base stood at $700 billion. This growth in the Insurance-Linked Securities (ILS) market reflects investor confidence in the sector's corrected pricing and stricter terms and conditions post-2023 renewals.
According to the Guy Carpenter and AM Best analysis, third-party capital now constitutes approximately 18% of the total dedicated reinsurance capital base of $700 billion as of mid-year 2024.
Twelve Securis Consolidates ILS Management Teams
ILS investment manager Twelve Securis, which manages $4.65 billion in assets, is combining its catastrophe bond and private ILS management units. The consolidation aims to streamline operations and enhance its private strategies platform. As part of this reorganization, Raphael Schwartz, who co-led the private ILS strategy, will be departing the firm. Florian Lino will assume leadership of the newly integrated team, which will manage the firm's full suite of private ILS and collateralized reinsurance strategies.
J.P. Morgan: ILS Capital Remains Disciplined Despite Record Issuance
Despite record-breaking catastrophe bond issuance of $11 billion in the first half of 2026, ILS market participants are demonstrating continued pricing discipline. According to an analysis from J.P. Morgan, the average spread on new issuances settled at 3.93% against an average expected loss of 2.04%. This represents a risk multiple of 1.93x, indicating investors are not sacrificing margin for growth. The total outstanding cat bond market now exceeds $50 billion. J.P. Morgan analysts note that investor demand is robust but selective, with a clear preference for named-peril, single-region transactions over more complex, multi-peril aggregate structures. This disciplined deployment contrasts with previous market cycles where excess capital led to rapid price degradation.
AIG’s General Insurance Underwriting Income Rises 10%
American International Group (AIG) reported a 10% increase in its Q2 General Insurance underwriting income, which reached $686 million. The improvement was achieved despite a 9% decline in net premiums written, a result of ongoing portfolio remediation and selective underwriting. Catastrophe losses for the quarter were $210 million, an increase from $170 million in the prior-year quarter. The stronger underlying result, driven by commercial lines performance, highlights the positive impact of AIG's strategy to shed underperforming business and focus on profitability. The improved combined ratio demonstrates that the firm's underwriting actions are earning through, even with elevated natural catastrophe activity.
Chipwich Maker Withdraws $4.5M Lawsuit Against Insurance Agency
Crave Better Foods LLC, the manufacturer of the Chipwich ice cream sandwich, has voluntarily withdrawn its $4.5 million lawsuit against insurance agency Brown & Brown of New York. The lawsuit, filed after a product recall, alleged that the broker failed to procure adequate product contamination coverage. Specifically, Crave Better Foods claimed it was not properly advised on options to reduce a $100,000 self-insured retention, which left the company with a significant uninsured loss. The withdrawal of the suit, with prejudice, suggests an out-of-court settlement was reached. The case serves as a stark reminder of broker E&O exposure related to communicating policy limitations and retentions.
Illinois Grants Insurance Department Power to Veto Rate Changes
Illinois Governor J.B. Pritzker has signed legislation granting the Illinois Department of Insurance (IDOI) prior-approval authority over personal auto and homeowners' insurance rates. Previously a "file-and-use" state, the new law (SB 3299) allows the IDOI Director to reject or modify rate filings deemed excessive, inadequate, or unfairly discriminatory. This marks a significant shift in the state's regulatory environment, impacting all insurers writing over $10 million in annual premiums. The move follows a period of substantial rate increases in the state, with some auto insurers having implemented hikes as high as 27%. The new power introduces political risk and uncertainty into the pricing process for carriers operating in Illinois.
Key Takeaways
- Given that cat bond spreads are holding at an average of 3.93% over a 2.04% EL, cedents must prepare for sustained pricing discipline from ILS funds during the 1/1 renewals and should not budget for a return to pre-2023 soft market multiples.
- The 6% projected growth in third-party capital to $130bn is strategically timed to absorb exposures being shed by traditional carriers like AIG, which reduced its GI net premiums written by 9% to improve profitability. This creates opportunities for ILS funds to partner with carriers undergoing portfolio remediation.
- Consolidation at ILS managers like Twelve Securis signals a drive for operational scale. As the alternative capital market grows beyond $123bn, larger, more efficient platforms will gain a competitive edge in deploying capital and attracting institutional investors, potentially increasing pressure on smaller, niche funds.
- The new rate-veto authority for the Illinois DOI provides a model for other states experiencing rate pressure. Reinsurers must now factor in heightened political risk to pricing models for US personal lines treaties, as regulatory intervention could trap capital and suppress cedent profitability in key states.
Sources
Third-party reinsurance capital projected for 6% growth to $130bn in 2026: AM Best & GC — artemis.bm
Twelve Securis combining cat bond and private ILS management teams, as Schwartz to depart — artemis.bm
ILS and alt capital remains disciplined amid record cat bond market growth: J.P. Morgan — artemis.bm
AIG’s General Insurance Q2 Underwriting Income Up 10% — insurancejournal.com
Chipwich Maker Withdraws Lawsuit Against Insurance Agency — insurancejournal.com
Pritzker Signs Bills Giving Insurance Department Power to Overturn Rate Changes — insurancejournal.com
European Insurance and Occupational Pensions Authority — eiopa.europa.eu