Catastrophe bond issuance is poised to set a new record in 2025, according to Moody’s. As of August 28, 2025, the market has seen approximately US$18.4 billion in cat bond issuance from 87 transactions, already surpassing the previous annual high of US$17.7 billion set in 2024.
Moody’s projects that total issuance could exceed US$20 billion by year-end, given the volume of deals typically completed in the final months of the year.
Moody’s attributes the growth to strong demand from sponsors seeking risk transfer capacity and investors attracted by risk-adjusted returns. While property catastrophe reinsurance pricing declined for more risk-remote layers during this year’s renewals, pricing remains favorable on a risk-adjusted basis.
The catastrophe bond market is expected to continue growing as sponsors look to complement traditional reinsurance and investors seek higher returns.
The alternative capital market has also expanded, with sidecar vehicles accounting for an estimated US$17 billion of the total, according to Aon. Casualty sidecars now represent about 8% of this segment, reflecting the growing diversity of structures available to both sponsors and investors.
The broader ILS market reached a record US$121 billion, highlighting the increasing role of alternative capital in risk transfer.
Investor appetite for catastrophe bonds remains high. According to Aon Securities, the average annualized return on outstanding cat bonds was 11.8% through June 2025, compared to 13.1% for the same period in the previous year.
These returns compare favorably to other fixed-income asset classes, such as US high-yield corporate debt, where average coupons have been below 7%. Moody’s notes that the yield advantage and portfolio diversification benefits are key factors supporting ongoing investor interest.
Despite significant catastrophe activity, including hurricanes and wildfires, investor losses in the cat bond market were limited over the past year. Catastrophe bonds delivered a 14.1% return over the 12-month period ending June 2025, according to Aon’s Catastrophe Bond Total Return Index.
The alternative capital markets have grown significantly, reaching US$121 billion as of June 30, 2025. Catastrophe bonds have been the largest contributor to this growth, accounting for about 45% of the alternative capital market.
On a full-year basis, data shows that catastrophe bond issuance hit an all-time high of US$17.7 billion in 2024, even as the number of deals declined slightly compared to 2023. The trend of fewer but larger deals has continued in 2025, with outstanding catastrophe bonds now at a record US$56 billion.
Insurer participation in catastrophe bond issuances has also increased, accounting for 58% of all issuances in the most recent period. Nearly all new deals (93%) were tied to North American perils, with Florida-focused issuance reaching a record US$5 billion.
Moody’s expects these market conditions to persist into 2026. Elevated demand for property catastrophe reinsurance, strong pricing, and attractive returns are likely to drive further expansion. With around US$14 billion in cat bonds maturing over the next four quarters, the market is positioned for continued high levels of new issuance.
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