Investors in catastrophe bonds are seeing a decline in risk premia to levels not seen since before Hurricane Ian hit Florida in 2022, as a surge in fresh capital drives down potential returns.
That’s according to an analysis by reinsurer Swiss Re, which published its assessment of the state of the market for insurance-linked securities on Monday.
“We have seen capital flow into the market that has resulted in spread tightening,” Andy Palmer, who oversees ILS structuring for Europe and Asia at Swiss Re, told Bloomberg News. “Looking ahead, there are sizeable amounts of maturities upcoming – approximately $11 billion in the first half – but we also expect the new issuance pipeline to remain strong.”
Hurricane Ian marked a milestone for the market for catastrophe bonds. Before September 2022, the market had enjoyed a period of relatively low losses and an abundance of capital, which led to lower returns. That dynamic changed dramatically after Ian wrought havoc across Florida, with risk premia spiking as investors demanded considerably more to hold catastrophe bonds exposed to such events.
Since then, cat bonds have enjoyed a surge in popularity as climate change fuels more extreme weather events and reinsurers increasingly rely on capital markets to take on growing risk levels. Since 2021, the Swiss Re Global Cat Bond Total Return Index has delivered a total return of 61%, which includes a record 20% in 2023. Last year, however, gains slipped to around 11% as the absence of major losses allowed issuers to offer lower returns.
Buyers of catastrophe bonds earn a total return that’s made up of a risk premium plus the going Treasury rate. The current risk premium of about 5.2% broadly matches levels seen in the months before Hurricane Ian hit Florida in 2022, and compares with the roughly 11% available in early 2023.
At the same time, cat bonds have weathered severe bouts of global market volatility better than many other asset classes, and “remained stable” amid US President Donald Trump’s tariff announcements, Swiss Re noted. The performance highlights the bonds’ “non-correlation with the broader market and moving in line with a benign US wind season,” it said.
The $60 billion cat bond market is also expanding into new risk classes. In 2025, a key development was the emergence of wildfire risk as an area cat bond investors were increasingly willing to take on after long having deemed it too hard to model.
Read More: Catastrophe Bonds Linked to Wildfires Lose ‘Untouchable’ Status
In a separate report published last week, Howden Capital Markets & Advisory said that last year’s high level of issuance had entrenched cat bonds as “structural anchors” within reinsurance programs.
“What we saw through 2025 and into the January renewals was catastrophe bonds firmly establishing themselves as a core component of clients’ risk management frameworks,” said Mitchell Rosenberg, co-head global ILS at HCMA. He said that issuers are no longer using the market only to supplement capacity, but also to introduce “durability, diversification, and pricing clarity into their reinsurance strategies.”
Top photograph: The destroyed Pine Island Road following Hurricane Ian in Matlacha Isles, Florida, on Oct. 1, 2022. Photo credit: Eva Marie Uzcategui/Bloomberg
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