Alternative reinsurance capital now moving into casualty, not just catastrophe: Gallagher Re

The booming insurance-led securities (ILS) market is moving into financing casualty losses and not just natural catastrophes, says Gallagher Re.

Key points:
ILS expands into casualty, not just nat cat
Cat bond issuance on track for $20bn in 2025
Reinsurers face investor pressure as growth slows

The booming insurance-led securities (ILS) market is moving into financing casualty losses and not just natural catastrophes, says Gallagher Re.

“The cycles are much longer when it comes to casualty risk. It’s a game changer.”

“This year will be the one in which the market securitises the casualty business,” Gallagher Re president Andrew Newman said at the company’s pre-Monte Carlo briefing in London. “We are now seeing investor appetite for a longer duration of exposure of risk. The cycles are much longer when it comes to casualty risk. It’s a game changer.”

Newman suggested that insurers could even sidestep reinsurers and go straight to these casualty capital providers as an alternative. Whether investors will have the stomach for the roller coaster of casualty is another question. US casualty continues to be buffeted by rising general inflation affecting everything from medical bills to construction costs, as well as social inflation – outsized litigation settlements. 

“Casualty is a bit of a Wild West compared to property catastrophe,” said Gallagher Re chief commercial officer Lara Mowery.

Gallagher Re expects global catastrophe bond issuance to hit $20 billion this year, compared with $17.04 billion in 2024, and $15.37 billion the year before that.

The alternative or third-party reinsurance capital space hit $118 billion in H1 2025, having grown 4.8% year on year, representing around 15% of global insurance capital. “There’s no reason to see why you won’t see another fourth record-breaking year of issuance,” said Newman. “I’m hesitant to say that there is a pool of almost infinite capital but I don’t think that I am that wrong.”

Overall, the reinsurance market had $805 billion in capital to deploy by the end of June this year. supply in catastrophe funding is significantly exceeding demand, said Gallagher Re CEO Tom Wakefield, with the per-event cat limit lifting to $10 billion.

Turning to softening pricing, US casualty has been holding firm but US property has been weakening. European property has seen double-digit rate reduction. And global specialty rates continue to decrease.

However, the picture becomes more complex when you factor in rate adequacy compared to softening prices. William Thompson, Gallagher Re head of global clients, pointed out that in many lines of business, rate adequacy – the premium rates re/insurer charges to cover all costs and allow for a reasonable profit margin – has been the best it's ever been. “The fact that rates are softening is not a bad thing,” said Thompson.

The other good news is that, per Gallagher Re, the market is reaching the end of the cycle when it comes to prior-year losses closing out. “We think that the industry as a whole is nearing the finish line,” commented Mowery on historic losses.

But with organic growth slowing, reinsurers are feeling the heat from investors who still want to see growth. “There’s growing pressure from investors to see more performance from reinsurers,” Wakefield said.

Gallagher Re said that, with muted organic growth, levers which re/insurers can pull to keep investors happy include M&A, increased dividends and share buybacks returning money to shareholders.

Newman speculated that this softening market will see a divide between well capitalised insurers and those that have fewer reserves. “Insurers that are well capitalised with a healthy amount of reserves are going to be far better placed to survive the nadir of a soft market.”

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