Speaking in a recent video interview with our sister publication Reinsurance News, James Vickers, Chairman of Gallagher Re’s International division, suggested that the excess capacity coming into the insurance-linked securities (ILS) space will help to drive innovation and support the development of new lines of business.
Commenting on the record year for cat bond issuance in 2024, Vickers highlighted a series of developments expected this year, including the effects of a new influx of capital.“I think that the new capacity coming in will make it easier to innovate a bit in the ILS space. I mean, who would have thought there’d be cyber bonds a couple of years ago? They are now building up some momentum. Casualty bonds are also beginning to appear,” Vickers said.
According to Vickers, the excess capacity coming in will help to drive innovation in these new lines, but the heart of the ILS market will remain property catastrophe.
“The new lines of business coming in are extremely interesting, but they’re not really moving the dial, well not at the moment anyway,” Vickers added.
Another point of interest in 2025 that the Gallagher Re executive highlighted is the balance between investors putting their money into traditional cat bonds and those looking at a collateralised approach.
“The spreads on cat bonds have narrowed, and as the pricing on some of these cat risks begins to fall away, the returns may drop a little bit,” he said.
Vickers continued, “If we go back to pre-2021/2022, cat bond pricing had become fairly decoupled from the original pricing. It’s now been completely in line with traditional pricing.
“However, if it drifts too far away, I think we might find investors preferring to move towards a collateralized approach, and perhaps offering traditional incumbent reinsurers collateralized quota shares and writing the business that way, rather than through a pure cat bond instrument.”
Watch the full video to hear more from Gallagher Re’s Vickers on the 1.1 2025 renewals, the property and casualty markets, the insurance-linked securities (ILS) sector, rising cat losses and more.
The full video interview is embedded below.
