Healthy ILS demand expected in 2025, but pricing less certain: Gibson, Schroders Capital

The catastrophe bond and insurance-linked securities (ILS) market is projected to experience strong investor demand in 2025, although the stability and trajectory of pricing within the sector—and across reinsurance more broadly—remain uncertain, according to Mark Gibson of Schroders Capital.

Following another year of attractive returns for investors in catastrophe bond and private ILS funds in 2024, we spoke with Gibson, Head of Products and Solutions Insurance Linked Securities at Schroders Capital, to gain insights into the 2025 outlook and key market drivers.

Reflecting on 2024, Gibson noted, “From a Schroders Capital perspective, the ILS market this year has been characterized by sustained attractive yields on a relative basis, along with limited impacts from significant wind and weather events.

“Yields have benefited from both collateral returns and favorable spread multiples, though the latter have tightened somewhat as capital has flowed into the market.”

He added, “In recent years, our focus has been on shifting toward more remote attachment levels, with a preference for occurrence over aggregate trigger mechanisms. Consequently, while 2024 saw above-average wind and weather-related losses, the impact on our portfolios was minimal.”

Looking to 2025, Gibson anticipates continued robust demand for catastrophe bonds and private ILS but acknowledges uncertainty around pricing trends.

“It’s challenging to provide a detailed outlook for 2025 due to numerous variables, some beyond our control, such as potential large events. However, we can make some general observations on broader market dynamics and their potential impact on demand and pricing trends,” Gibson explained.

He elaborated, “The catastrophe bond market seems more balanced compared to the start of 2024. A significant volume of maturities over the next few months, coupled with retained earnings and new inflows, suggests healthy demand for issuances. The primary pipeline is relatively strong, with notable activity from both new and repeat sponsors during Q4.”

However, Gibson cautioned that pricing dynamics will depend on the interplay between issuance volumes and available capital. “If capital surpasses primary issuance, we might see further spread tightening, as observed in Q4 2024. Conversely, if the pipeline is larger and extends further, spread levels in Q1 2025 may firm up slightly.”

In the private reinsurance market, where Schroders Capital also allocates capital, Gibson highlighted potential capital pressures affecting pricing. He noted, “The private ILS market is more closely aligned with traditional reinsurance trends compared to catastrophe bonds. While senior reinsurers emphasize market discipline, increased industry capitalization from retained earnings may heighten competition.”

During the current renewal season, Gibson observed limited downward pricing pressure, even for peak perils, and a gradual return to aggregate structures addressing loss frequency. “Protection buyers may respond to more favorable terms and conditions by increasing their coverage purchases,” he said.

This, Gibson concluded, could lead to growth in both public and private ILS markets and contribute to a more stable pricing environment. However, he emphasized that it is too early to determine whether this scenario will materialize.

Explore more insights from ILS market and reinsurance professionals in our full series of interviews.