Following the annual AIFA conference held in Florida this week, a new report from analysts at Jefferies reveals that industry executives believe it would take a single $100 billion insured loss event to derail the insurance-linked securities (ILS), catastrophe bond, and reinsurance markets.
As per Jefferies, a key takeaway from the discussion was the panelists’ consensus that a $100 billion event, particularly one centered in Florida, would be required to fundamentally shift the reinsurance and cat bond market in its current state.
As Artemis’ readers are aware, the cat bond market has expanded rapidly in recent years, with 2025 setting the record for highest total issuance across Rule 144A and private cat bond transactions, at over $25.6 billion, beating the previous record just under $17.7 billion which was set a year earlier in 2024 by 45%.
Including all 144A cat bonds and the private cat bond deals we track in our extensive Artemis Deal Directory, the outstanding catastrophe bond market also ended 2025 at a record size of just over $61.3 billion.
It’s also important to remember that with insured losses having exceeded $100 billion annually for six consecutive years now, this has also caused the industry to recalibrate its threshold for what was previously deemed a massive catastrophe event.
Jefferies’ analysts also highlighted that the impact of climate change on the ILS market was another key area that was discussed among the panelists.
“The impact of climate change on the ILS market will take time to become clear. The impacts of climate change, particularly on certain perils, are becoming clearer as the level of losses for the broader insurance industry has risen to higher annual averages. The industry is taking steps to address climate change, namely, the tightening of T&Cs and increases in retentions in the most recent hard market,” Jefferies noted.
Addressing the current state of insurance-linked securities, the panel observed a transition in the pricing environment.
“The ILS market has been a beneficiary of the hard market over the past few years in terms of ILS growth, though the tides have turned. Spreads have begun to compress in the CAT Bond market. The panel believes the market is still a long way from seeing T&C erode,” Jefferies said.
Adding: “The surge in CAT bond issuance in the past couple of years has led to a capital market of ~$62bn for the asset class. Part of the reason for the success of the CAT bond market is the long history of investors long being rewarded; the last three years have been the best performing three years in the past 25. CAT Bonds are currently paying ~200bps spread to a corporate at similar credit rating levels.”
As per Jefferies, the panelists also emphasised how the California wildfires in 2025 led to various changes in cat modeling and quickly led to changes in pricing as well.
In the past, these sorts of resets or model changes have happened following large events in other perils including Hurricane Katrina (2005) and the Tohoku Earthquake and Tsunami, Jefferies explained.
“Rate and margin are really driven by amount of capital that is chasing demand. In the case of 9/11, it was a new kind of risk that the suppliers of capital needed to evaluate before demand could be met, and proper pricing could be discovered. In the case of the CA Fires, there was an abundance of capital in the market, which kept prices from climbing materially,” the report reads.
The panel also outlined that success in the ILS market relies heavily upon the longevity of capital.
While capital often ebbs and flows into and out of the ILS market as the insurance cycle changes, ILS investors are often weighing the trade-offs of ILS relative to other assets that are uncorrelated to the market.
“While ILS is typically marketed to investors as uncorrelated risk, the panel characterised the securities as low correlation rather than zero correlation. While there is also the chance for catastrophes to coincide with an economic recession or other market correction, the likelihood is low. A broader liquidity crisis is likely to be a more concerning event for ILS returns, should it occur,” Jefferies added.
Lastly, the subject of trapped capital was also acknowledged by the panelists, who consider it a potential concern within the industry. Nevertheless, the panelists indicated that the current level of trapped capital is low, particularly due to the lack of recent major natural catastrophe activity.
Given the rapid capital build-up in reinsurance and insurance-linked securities markets over the last couple of years, excess capital is the main pressure on pricing, especially in property catastrophe risks.
It will take meaningful capital erosion from a large event, as the AIFA speakers suggest, some other macro shock, or a meaningful adjustment in institutional capital’s perception of global risk levels to derail the current trajectory it seems.
