A recent poll of insurers in the USA, undertaken by broker Aon’s Capital Advisory division, found that inside those carriers’ capital management plans for 2025, insurance-linked securities (ILS) and third-party reinsurance capital solutions are a big feature.
With the market having been difficult for quite a few years, but insurers responding with a growth mindset against a backdrop of positive rate momentum, demands on capital are shifting, broking giant Aon says.
One interesting finding for our audience from the poll, is that the US insurance industry looks set to proceed exploring the capital markets for reinsurance and risk transfer solutions, with 15% of respondents specifically indicating ILS solutions as inside their 2025 capital management plans.
Growth plans are evident, as too is the incontrovertible fact that the vast majority of insurers see their catastrophe retentions as manageable, relative to surplus, although many still see them as meaningful in comparison with earnings.
But with a growth mindset, the US insurance industry needs a wide-range of capital solutions to support its premium plans, which is where reinsurance and risk transfer looks set to proceed playing a big role.
Asking poll respondents in regards to the types of capital they’re including of their 2025 capital management plans, aside from traditional reinsurance, retained earnings and equity, Aon found that 15% cite insurance-linked securities (ILS) and third-party capital backed reinsurance arrangements.
Some 10% of respondents answered catastrophe bonds or ILS, as a type of capital of their plans for 2025.
An additional 5% answered sidecars or third-party capital.
When you concentrate on that traditional reinsurance is excluded from the answers, but a proportion of that little doubt flows to collateralized reinsurance funds, this means a comparatively high-level of interest in cat bonds, ILS and other third-party investor backed reinsurance arrangements.
Other structures that could be backed by institutional capital and investors also featured within the responses, with 20% indicating debt or surplus note issuance as of their plans, while 22% pointed to structured reinsurance, on which Aon says “structured quota shares is perhaps a possible solution.”
With some investors and ILS fund specialists also specializing in the quota share reinsurance investment space, this might also indicate more reliance on the form of capital that gets managed within the ILS market, or deployed by other adjoining entities and allocators.
By excluding traditional reinsurance from this query on types of capital, Aon has helped to drive home the growing sophistication in how institutional and capital markets are accessed by the US insurance industry.
Which suggests continued positive momentum for 2025, inside catastrophe bonds, ILS, sidecars and other third-party reinsurance capital arrangements.