Catastrophe bond issuance in the first half of 2025 nearly outpaced all of 2024 as interest in the market grows among buyers and investors.
An estimated $17.1 billion in new catastrophe bond limit was issued in the first half, compared with about $17.2 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.
“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, Connecticut-based CEO of Aspen Capital Partners, a division of Aspen Insurance Holdings. 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 are accessing the cat bond market to complement their traditional reinsurance.
“What we have seen has been a surge of first-time issuers,” said Len Zaccagnino, New York-based director of ILS sales for Swiss Re.
More governments and corporations have accessed the market, he said. Since 2021, there have been 56 transactions featuring new sponsors, including 10 this year, with investors receptive to new and existing sponsors.
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.
Cat bond sponsors have sought higher catastrophe insurance limits due to the effects of inflation on their insured asset values, said Mr. Zaccagnino.
“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,” Mr. Pennay said.
Higher interest rates have also made the vehicles more attractive to investors, who see more return on their collateral, Mr. Pennay said.
Strong years for investor returns in 2023 and 2024 helped spread awareness among investors of insurance-linked securities as an asset class, said Mr. Zaccagnino.
Although new issuance volume is typically lower in the second half of the year, “we do expect a robust pipeline of both new and returning issuers,” he said. “We expect that, if there are no disrupting catastrophe events, for the market to eclipse $20 billion for the full year of issuance.”
Natural catastrophe activity caused at least $84 billion in global insured losses in the first half of 2025, according to a Gallagher Re report.
The losses, driven by the high costs from the January wildfires in the Los Angeles region and elevated U.S. severe convective storm activity, were 55% higher than the average in the decade from 2015 to 2024.
Weather and climate events, which exclude losses associated with earthquakes, volcanoes or other non-atmospheric-driven events, caused at least $81 billion in insured losses, 59% higher than the 10-year average and more than first-half 2024’s $75 billion, according to Gallagher Re, the reinsurance business of Arthur J. Gallagher & Co.
The January Palisades Fire in California was the most costly event, at $23 billion in insured losses, followed by the Eaton Fire, at $17 billion, the report said.
The insurance industry is “well positioned” to be able to handle such elevated losses due to “so much more capital coming into the reinsurance space,” said Steve Bowen, chief science officer at Gallagher Re.
“There has been a really significant shift in mindset in terms of how the industry views the risk and how well prepared it is to absorb these increasingly expensive events,” Mr. Bowen said.
