Catastrophe bond issuance in the first half of 2025 outpaced all of 2024 as interest in the market grows among buyers and investors.
An estimated $17.2 billion in new catastrophe bond limit was issued in the first half, compared with about $17 billion in all of 2024, according to industry estimates.
Catastrophe bonds grew more competitive after traditional reinsurance pricing rose following a series of losses dating back to Hurricane Ian in late 2022, said Richard Pennay, New York-based CEO of Aon Securities, a unit of Aon PLC.
“The cat bond product became a more viable instrument relative to reinsurance, and what we’ve seen is that clients have ultimately sought to balance out or complement their reinsurance placement with catastrophe bonds,” he said.
Cat bonds have continued to thrive despite falling traditional reinsurance pricing at mid-year renewals.
Alternative capital is “an integral part of our strategy,” said Brian Tobben, Stamford-based CEO of Aspen Capital Partners, a division of Aspen Insurance Holdings Ltd. The insurer and reinsurer sponsors cat bonds, uses collateralized retrocessional reinsurance capacity and deploys sidecars for both catastrophe and noncatastrophe risks.
“We use our third-party capital franchise to support both our insurance portfolios and our reinsurance portfolios,” Mr. Tobben said. “They’re an effective risk management tool for us.”
Clients increasingly understand and value some of the structural components of cat bonds, including the collateralization of the product and multi-year structures, allowing buyers to lock in pricing for a longer period, Mr. Pennay said.
“The catastrophe market has matured, and I think there’s a very good understanding between the investor community and the sponsor community around what the needs are. There’s a good understanding of how the market functions,” Mr. Tobben said.
Helping fuel growth is a combination of existing clients coming back to market and increasing their allocation to bonds and “a slew of new clients that have come to market in order to diversify and complement their broader reinsurance placement,” Mr. Pennay said.
In addition to increased demand from private insurers, “significant growth” is also coming from governments and governmental organizations, according to Mr. Pennay. Residual markets such as the Texas Windstorm Insurance Association and Florida’s Citizens Property Insurance Corp. are accessing the cat bond market to complement their traditional reinsurance.
Aspen continues to see broader interest from an increasing pool of catastrophe sidecar investors, Mr. Tobben said.
The overall property catastrophe sidecar market, which allows third-party investors to participate in a reinsurer’s risk portfolio, has grown by approximately 10% since year-end 2024, Gallagher Re, the reinsurance business of Arthur J. Gallagher & Co., said in its July renewals report.
On the noncatastrophe side, “investors are reaching out to us interested in what we might be able to offer,” Mr. Tobben said.
“Interest in casualty sidecars continues to grow, and the first half of this year saw several new cedents access the noncatastrophe sidecar market,” according to Gallagher Re.
General inflationary trends in the U.S. and globally mean insurers are buying more catastrophe limit to cover rising asset values and replacement costs, Mr. Pennay said.
“So, the question is, do you go into the reinsurance market and purchase that additional limit, or do you supplement your reinsurance placement with more cat bond limit? The capital market has benefited from the fact that generally speaking, insurance companies, particularly here in the U.S., have been purchasing more limit,” he said.
Higher interest rates have also made the vehicles more attractive to investors, who see more return on their collateral, Mr. Pennay said.
