The insurance-linked securities market accounts for 15 percent of the global property cat reinsurance capacity with Bermuda acting as a central player in the convergence between capital markets and traditional reinsurers.According to a recent ILS report issued by Conning, an asset management, advisory and insurance research firm based out of Hartford, CT, alternative capital in the ILS market now hovers around $35 billion of the estimated $240 billion in total capacity.And that number is set to grow with the Island standing to benefit.“Bermuda has a key role to play and it has demonstrated it is playing a key role,” said Steve Weberson, lead author of the study in an interview with The Royal Gazette. “I think it’s a positive for Bermuda. This is the convergence of traditional reinsurance markets and the capital markets. Bermuda seems to be central to that convergence.”Of the ILS class, cat bonds are the largest component, accounting for more than 40 percent.The Royal Gazette has reported in the past that Bermuda lays claim to about a third of the global cat bond market with the Bermuda Stock Exchange (BSX) passing the $5 billion mark in listed ILS, which includes industry loss warranties, sidecars and cat bonds. In May 2012, the BSX gave listing approval to Florida Citizens as sponsors of a $750-million single-peril catastrophe bond deal, the largest cat bond on record.According to the report, the ILS asset class has grown in popularity due to its lack of correlation with most other types of investments, while offering attractive historical returns, adding that the market is also seeing more increased interest from a broadening range of investors including pension funds, institutional investors and private equity funds.“Among the ILS products, we believe growth prospects are strongest for collateralised reinsurance and sidecars, mainly due to their flexibility and broader appeal,” read the report. “We continue to see the greatest interest in peak perils such as US wind and earthquake exposures.”A key challenge for the market, however, is becoming a “victim of its own success”.“Additional capital will create downward pressure on prices and ultimately lower returns,” read the report. “It is clear that the ups and downs of reinsurance pricing have dampened in recent years and we believe that has much to do with the growth in alternative capital sources.”