Why the catastrophe bond market is so hot right now

The catastrophe bond market shattered a host of records in 2025 — and many expect another banner year as investors flock to what has been an often-overlooked asset class.

The issuance of so-called CAT bonds ballooned to $25.6 billion in 2025, according to specialist data provider Artemis.bm, eclipsing the 2024 record of just under $17.7 billion by a whopping 45%.

The issuance stemmed from 122 transactions, surpassing the previous record of 95 set in 2023, with 15 first-time sponsors seen entering the market. Taken together, these records reflect a breakout year for what has long been considered a relatively niche corner of the insurance industry.

Andy Palmer, head of insurance-linked securities (ILS) structuring for EMEA and APAC at Swiss Re, one of the world’s largest reinsurers, said no one could have predicted the amount of CAT bond issuance in 2025, describing the feat as “absolutely remarkable.”

“By any dimension you want to measure it, the market is growing. We are seeing larger deals being done, we are seeing new sponsors coming to market [and] we are seeing a meaningful expansion of risk,” Palmer told CNBC by video call.

“It was just a shift, I think, mentally for everybody that looks at this space,” Palmer said. “We expect that now to continue from here on in.”

First created in the 1990s, CAT bonds refer to a type of financial instrument designed to raise money for insurers in the event of a natural disaster, such as a hurricane or earthquake.

These insurance-linked securities are essentially a way for insurers or reinsurers to offload the risk of potentially large losses from extreme events to investors. This in turn, provides insurers with access to funding, helping them to pay claims in the event of a catastrophe.

Swiss Re’s Palmer said roughly 60% of CAT bond market deals tend to be for a three-year term and investors were highly likely to want to renew coverage when those deals expire in 2026.

“So, a very quick rule of thumb might be to have a look at the new issuance back in 2023, which we measure at about $15.6 billion, and that would provide a sort of floor,” Palmer said.

An expectation of further growth and larger deals in 2026 means CAT bond issuance could climb to around $20 billion, Palmer said. If realized, this wouldn’t be quite as much as 2025, but it would still represent the second-largest year of issuance on record.