Catastrophe Bond Market Booms to Record $55 Billion in 2025
The catastrophe bond market is booming, with issuance on track to set a record in 2025. This growth, equivalent to what would have taken half a decade previously, has seen the market surge to $55 billion, up over 50% since 2023. Primary insurers are now sponsoring 58% of all cat bonds, a significant increase from two years ago.
The shift in the market is notable. Reinsurers are increasingly moving their business to alternative investment managers, seeking double-digit returns on secondary markets. This trend, coupled with the expansion of catastrophe bonds, is putting pressure on reinsurance rates and causing a price correction.
Cat bond buyers face risks, with potential deep losses in case of catastrophic events. However, they also stand to gain sizable returns if such events do not occur. The Swiss Re Global Cat Bond Performance Index reflected this, losing about 2% in 2022 due to Hurricane Ian but gaining about 10% this year.
Leading insurers like Zurich Insurance Group and Swiss Re have expanded their presence in the catastrophe bond market. Industry losses tied to extreme weather events are projected to exceed $150 billion this year, well above the historical average, further driving the demand for cat bonds.
The catastrophe bond market's growth is reshaping reinsurers' market dynamics. As issuance continues to rise and primary insurers' involvement increases, reinsurers may face eroding market share. The market's future, however, remains uncertain, with potential losses and gains for buyers and significant industry losses projected this year.
