Gallagher Re reports that in 2024, alternative capital was the primary driver of new funds entering the reinsurance market.

According to Gallagher Re, alternative reinsurance capital—primarily from catastrophe bonds and other non-life insurance-linked securities (ILS)—reached a record $114 billion by the end of 2024, making it the dominant source of new capital entering the reinsurance sector last year.

Traditional reinsurance capital also saw growth in 2024, climbing to $629 billion, but this expansion was largely fueled by retained earnings. This continues a recent trend where increases in traditional capital have been driven by internal profits and investment returns, while alternative capital has served as the key channel for attracting fresh investor funds into the market.

Total dedicated reinsurance capital rose by 5.4% in 2024, with Gallagher Re’s monitored subset of reinsurers growing 5.3%. However, alternative and ILS capital outpaced this, growing by 6.6% over the year.

By year-end 2024, the global dedicated reinsurance capital pool reached $769 billion—comprising $629 billion from Gallagher Re’s index group, $114 billion from alternative and ILS sources, and $26 billion from major regional and local reinsurers, including apportioned capital from larger groups.

While retained profits were the primary growth driver for traditional reinsurance, catastrophe bonds led the expansion in the ILS space, accounting for much of the 6.6% growth in alternative capital. Capital markets and ILS investors continue to be the primary contributors of new funds entering the sector.

ILS structures have become the preferred method for deploying capital into re/insurance, and are increasingly favored by private equity as a way to back underwriting ventures. While creating new reinsurance firms with fresh equity might become more appealing later in the market cycle, ILS remains the most efficient way for investors to commit large-scale capital to the sector at present.

Gallagher Re’s data closely aligns with Aon’s, which reported alternative reinsurance capital at $115 billion at the end of 2024, reflecting a slightly faster growth rate of 7%.

Looking ahead, Gallagher Re anticipates that traditional reinsurance capital could increase by another 6% in 2025, thanks to continued strong earnings. However, given current trends, it wouldn’t be surprising if alternative capital outpaces traditional capital growth in reinsurance once again this year.