Insurance Curator NEW YORK — Catastrophe bond issuance held broadly steady in 2025 even as insurers in major developed markets turned increasingly to insurance‑linked securities to shore up capital against a rising tide of weather‑ and climate‑driven losses, and investors pushed into the market seeking higher, uncorrelated yields. Who: insurers and reinsurers in the United States and other advanced economies, and institutional and retail investors. What: use of catastrophe (cat) bonds and other insurance‑linked securities (ILS) to transfer risk and to chase yield. When: across 2024–2025 and into early 2026, with market data and transactions through year‑end 2025. Where: primary activity concentrated in the U.S., Bermuda and London capital‑market platforms but drawing global investor capital. Why: mounting insured losses from wildfires, convective storms and other perils have tightened traditional reinsurance markets, while investors seek returns that are lowly correlated with equities and bonds. (artemis.bm)
The big picture
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The catastrophe‑bond and broader ILS market recorded a record year of issuance in 2025, with new issuance across Rule 144A and private transactions tracked by market research firm Artemis reaching about $25.6 billion and the outstanding market topping roughly $61.3 billion at year‑end 2025. That surge followed an already strong 2024 and reflected both sponsor demand for diversified reinsurance and sustained investor appetite. (artemis.bm)
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Insured losses from natural catastrophes also rose in 2025, driven by exceptionally large wildfire and convective‑storm events. Swiss Re Institute’s preliminary estimates put insured losses at about $80 billion in the first half of 2025, and later reporting for the full year indicated insured losses near or above $100 billion—figures that pressured underwriting capacity and reinforced demand for alternative capital. Those elevated loss levels have been among the drivers pushing insurance companies to tap capital markets. (investing.com)
Why insurers are using ILS now
Primary insurers and reinsurers in advanced economies are increasing their use of catastrophe bonds for three interlocking reasons: (1) tighter traditional reinsurance capacity and higher renewal pricing following recent loss years; (2) the ability of multi‑year, collateralized ILS structures to provide predictable, bankable protection; and (3) balance‑sheet and regulatory considerations that make transferring tail risk to capital‑market investors attractive. Rating agencies and market advisers say the need to manage capital and to diversify reinsurance towers has been particularly acute for large U.S. property insurers and certain government residual markets. (theinsurer.com)
State Farm, Farmers and other major sponsors
Large U.S. insurers returned to the cat bond market in force in 2025. State Farm’s multi‑series Merna Re 2025 program—comprising several series that collectively provided about $1.55 billion of collateralized protection—was among the largest single‑sponsor visits to the market on record, demonstrating how major insurers can deploy ILS for multiple perils and layered coverages. Farmers Insurance and other carriers also placed multi‑hundred‑million‑dollar transactions during the year to augment their traditional reinsurance programs. Those transactions illustrate that first‑world insurers have employed cat bonds not only for peak‑peril hurricane and quake exposure but increasingly for wildfires, severe convective storms and multi‑peril packages. (artemis.bm)
Investor demand and the search for yield
Institutional investors—hedge funds, pension funds, asset managers and traditional fixed‑income teams—have been drawn to cat bonds by historically attractive spreads and low correlation to financial markets. Average returns for the asset class were reported as elevated through mid‑2025, even as spreads compressed modestly with renewed inflows. Asset managers and new product sponsors have pointed to catastrophe bonds as "diversifying, floating‑rate" assets that can sit alongside fixed‑income allocations while offering yields in the mid‑to‑high single digits or low double digits depending on peril and structure. (theinsurer.com)
The market also broadened access in 2025 with the launch of the first U.S.‑listed catastrophe‑bond ETF. The Brookmont Catastrophic Bond ETF (ticker: ILS) began trading in April 2025 to offer daily liquidity and a transparent vehicle for a previously opaque, primarily institutional market. Brookmont’s chief investment officer said the ETF met investor demand for both yield and diversification, calling catastrophe bonds “a low‑correlation, high‑yield alternative” at a time when investors were searching for sources of income. The ETF’s arrival helped validate retail and wealth channels as a genuine demand source, even as most large ILS placements remained institutional. (businesswire.com)
Deal mechanics and pricing trends
Market participants and deal records show a bifurcation of pricing across the cat‑bond universe in 2025. The more remote, higher‑attachment tranches—those with low modelled expected loss—saw multiple compression as investors competed for risk‑remote exposure. By contrast, deals that covered higher‑frequency or emerging perils (wildfire aggregates, severe convective storms or multi‑year aggregate covers) generally priced with wider spreads to compensate for elevated expected losses. Rating agencies and modelers noted that pricing remained attractive on a risk‑adjusted basis but cautioned that structural and modeling nuances matter greatly for investors assessing potential payout scenarios. (artemis.bm)
Voices from the market
“Strong returns on cat bonds have highlighted the attractiveness and diversification value of the asset class for investors,” said Mariagiovanna Guatteri, CEO and CIO of Swiss Re’s ILS unit SRILIAC, commenting on a strategic co‑management partnership between Swiss Re and asset manager GAM in April 2025. Guatteri added that the partnership anticipated “considerable interest both from cat bond issuers and investors.” (globenewswire.com)
“Rising weather‑related risks highlight the need for cat bonds more than ever,” Ethan Powell, Brookmont’s chief investment officer, said at the ETF’s launch, arguing the product offered institutional‑style exposure in an accessible format. Powell called ILS “a low‑correlation, high‑yield alternative” for investors facing uncertain macro conditions. (businesswire.com)
Model risk, defaults and caveats
The surge in issuance and investor flows has not removed fundamental risk. Rating agencies and market analysts cautioned that modeling limitations, accumulation exposure, and the growing importance of secondary perils add complexity. S&P Global Ratings' analysis in 2025 noted that despite elevated insured losses—especially from California wildfires—historical default rates on catastrophe bonds have remained low when viewed over the long run, but the agency warned that aggregate transactions and multi‑year structures can be vulnerable when losses accumulate across seasons and calendar years. Industry analysts point out that low historical default rates mask episodic years when defaults spiked after clusters of severe events. (artemis.bm)
The wildfire example is instructive: Swiss Re and other loss trackers estimated insured losses from the Los Angeles–area wildfires in early 2025 at roughly $40 billion, making that single event among the costliest wildfire losses on record and highlighting how concentrated, urban‑edge wildfires can create outsized shocks. Such shocks can deplete collateralized protection layers and test investor returns. Market participants say the wildfire experience has encouraged more frequent use of subrogation provisions, extended triggers and heightened diligence on accumulation management. (marketscreener.com)
How insurers choose ILS vs. traditional reinsurance
Insurers weigh several variables when deciding to tap ILS: cost of capital, required attachment points, the duration of protection, regulatory capital relief, and the speed and certainty of collateralized payouts. Cat bonds typically sit in higher layers of reinsurance programs—protecting against major, infrequent events—where their collateralized nature and multi‑year terms are attractive. Traditional reinsurance, by contrast, can offer broader relationship and underwriting services. When traditional market capacity tightens and renewals harden, issuers increasingly turn to capital markets to secure capacity and price certainty. (artemis.bm)
Geography and peril mix: U.S. dominance and broader demand
Roughly two‑thirds to three‑quarters of cat‑bond exposure remains concentrated on U.S. perils, especially hurricanes, earthquakes and severe convective storms, but the market is diversifying. Issuers and arrangers in Europe, Japan and Australia have sponsored cat bonds for earthquakes, windstorms and flood, and new structures cover cyber, terrorism, pandemic and mortgage‑related risks in limited forms. In 2025, issuance for secondary perils such as wildfire and convective storms rose materially, reflecting both insurer demand and the emergence of investors prepared to price higher expected‑loss exposures. (artemis.bm)
Regulatory and market‑structure considerations
Regulators in major jurisdictions are paying closer attention to ILS as the market grows. Prudential rules, accounting treatments and capital charges affect whether insurers and reinsurers prefer collateralized capital market solutions. The growth of UCITS and regulated fund vehicles for ILS, plus the debut of retail‑accessible ETFs, has attracted broader scrutiny over disclosure, liquidity and investor understanding. Market participants say transparency of model assumptions, detailed prospectus disclosures and careful stress testing have become central to successful issuances. (ilsetf.com)
What could slow the market
A sharp cluster of catastrophes that triggers many large‑attachment bonds in a single season would materially reset the market. Rating agencies and ILS managers point to three specific tail risks: concentrated urban disasters, underestimated secondary‑peril frequency, and counterparty or collateral shortfalls in exceptional scenarios. Conversely, a prolonged benign loss period could compress spreads further and draw even more capital—raising concentration and basis‑risk concerns. The market’s growth trajectory therefore remains tightly linked to the path of insured losses and investor risk tolerance. (artemis.bm)
Outlook: 2026 and beyond
Analysts polled by market observers in late 2025 and early 2026 expected continued growth in ILS and catastrophe bond issuance in 2026, though with greater differentiation across peril types and tranche attachment points. Moody’s and other agencies forecast more issuance so long as reinsurance demand stays elevated and investor returns remain compelling, even as spreads moderate. The combination of record 2025 issuance, ongoing climate‑driven risk trends and new product distribution channels suggests ILS will continue to play a growing role in the global risk‑transfer architecture for first‑world insurers. (theinsurer.com)
Conclusion
For insurers in advanced markets, catastrophe bonds and related ILS structures are no longer experimental hedges but mainstream components of reinsurance strategy—used to cap large exposures, stabilize renewal costs and meet regulatory or rating‑agency expectations. For investors, ILS presents a distinct yield opportunity and a diversification tool, but one that requires specialized modelling, an understanding of event accumulation risk and readiness for episodic losses. The market’s expansion in 2025—backed by record issuance and new retail access—demonstrates both the appetite and the complexities that will shape how insurers and capital markets jointly manage the rising frequency and severity of natural catastrophes. (artemis.bm)
Sources: Artemis (Artemis.bm), Swiss Re Institute and Reuters reporting on Swiss Re estimates, Moody’s and market commentary, GAM and Swiss Re press release, Brookmont Capital Management prospectus and ETF filing, S&P Global Ratings analysis and industry trade reporting. Specific cited material in this article includes Artemis market reports and deal coverage (Jan. 8, 2026; 2025 deal directory), Swiss Re Institute preliminary loss estimates (Aug. 6, 2025) and subsequent 2025 loss reporting, Brookmont ETF launch materials (Apr. 2025), Moody’s market commentary (2025), and S&P default‑rate analysis (Aug. 2025). (artemis.bm)