A record $US8.03 billion ($10.12 billion) in insurance-linked securities (ILS) was raised last year, and the trend is set to continue.

The rise of alternative capital is listed as a factor in the recent XL takeover of Catlin, and Axis Capital’s merger with Partner Re, as traditional reinsurers expand to compete more effectively.

Aon Benfield Securities CEO Paul Schultz says while ILS volumes are increasing, so are the number of perils, territories and currencies being written.

Insurance-linked securities are becoming more accessible to smaller businesses, and the outlook for this year remains positive.

Willis Capital Markets & Advisory forecasts that volumes this year will top last year, and up to $US9 billion ($11.34 billion) could be raised.

It says the gap between cover provided by investors and by traditional reinsurers is shrinking.

Fewer reinsurers issued bonds, although the total amount they raised grew compared with 2013.

Willis MD and Head of ILS William Dubinsky expects cat bond spreads – the interest rate difference between traditional bonds and higher-yielding cat bonds – to narrow unless there is a major event such as another financial crisis or market-moving catastrophe.