AM Best: Cat Bond Growth Accelerates as Loss Multiples Compress

Why It Matters

The report signals that cat‑bond markets remain a lucrative, expanding avenue for risk transfer, but profit‑taking could temper future growth, prompting investors and insurers to adjust capital‑deployment strategies.

Key Takeaways

• ILS market hit $120 billion by end‑2025, driven by strong demand
• Cat bond issuance surged, with spreads compressing as investor appetite grew
• Over 30 new sponsors entered 2025, diversifying risk types beyond wind
• Absence of major US hurricane in 2025 boosted cat bond returns significantly
• Investors may take profits, slowing market growth despite attractive returns

Summary

The AM Best report highlights that the insurance‑linked securities (ILS) market reached roughly $120 billion at the close of 2025, propelled by robust demand for reinsurance capacity and a three‑year streak of strong cat‑bond returns. Supply‑side earnings have been redeployed into the market, especially into catastrophe (cat) bonds and side‑car structures, while a broader set of insurers and sovereigns are increasingly comfortable tapping ILS capital.

Key data points include a record‑breaking issuance year, with 13 new sponsors entering the 144A property cat‑bond arena in 2025—bringing the three‑year total to over 30. Spreads have compressed after peaking in early 2023, reflecting abundant capital and double‑digit returns that attract a wider investor base. The report also notes that loss multiples compressed, as the year saw no major US landfalling hurricane, allowing returns to remain robust despite isolated events like the LA wildfire and severe convective storms.

Notable examples cited were the first Israeli earthquake bond and several wildfire‑focused cat bonds, expanding the risk spectrum beyond the dominant US wind exposure. The absence of a catastrophic US hurricane in 2025, contrasted with the 2024 landfalls of Hurricanes Milton and Helen, underscored how event location and severity drive loss outcomes and, consequently, investor performance.

The outlook suggests continued growth into 2026 but at a slower pace, as some investors may opt to lock in profits rather than fully redeploy retained earnings. Nonetheless, the market’s diversification, sustained attractive yields, and normalized issuance process signal a durable platform for risk transfer and capital allocation.

Original Description

AM Best Senior Director Wai Tang and Director Matthew Tuite discuss a new Best's Special Report that finds that the ILS market is expected to grow in 2026, albeit slower than 2025.

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