Structural Anchors in a Changing Market: Howden Capital Markets & Advisory’s 2025 Review of Cat Bonds and ILS, and 2026 Outlook

Following a record year for catastrophe bond issuance and a period of transformative deal-making across the insurance sector, Howden Capital Markets & Advisory reflects on the key trends of 2025 and what they mean for investor sentiment in 2026. Investor appetite across reinsurance and insurance-linked securities (ILS) evolved markedly in 2025, as capital continued to flow into the sector amid attractive risk-adjusted returns and growing institutional confidence.

Cat Bond and ILS data from 1.1 Renewals

In 2025, catastrophe bonds continued their shift from niche to mainstream reinsurance tools. Issuance reached record levels, with volumes around 45% higher than 2024, driven by a greater number of transactions rather than larger deal sizes. New and repeat sponsors alike reinforced catastrophe bonds as a core component of global risk transfer, not a specialist alternative.

Investor demand matched this growth. Strong appetite and a wave of second-half maturities drove double-digit spread tightening by year-end, while pricing remained attractive for both sponsors and investors. Increasingly competitive economics, often versus traditional reinsurance, accelerated catastrophe bonds’ evolution into structural anchors within reinsurance programmes.

Mitchell Rosenberg, Co-Head Global ILS commented: “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. Sponsors are no longer using the market solely to supplement capacity; instead, they are leveraging it to introduce durability, diversification, and pricing clarity into their reinsurance strategies - shifting from a more tactical to a clearly strategic use of capital markets capacity.”

Jarad Madea, CEO of Howden Capital Markets & Advisory, added: “These renewals underline how closely capital markets and reinsurance outcomes are now linked. As the market rebalances, the ability to connect traditional reinsurance with ILS, catastrophe bonds and collateralised structures is no longer optional. It is central to building resilient, efficient programmes in a more competitive environment.”

Investor sentiment

Investor sentiment across reinsurance and insurance-linked securities (ILS) continued to strengthen in 2025, supported by attractive risk-adjusted returns and growing institutional confidence in the asset class. Early investors who entered the market following Hurricane Ian are now largely deployed and remain committed, while new capital, including first-time entrants such as CalPERS, was drawn by relative value versus traditional credit markets. As appetite broadened, investors increasingly sought diversification beyond peak catastrophe risk, including non-cat exposures and alternative structures.

Throughout the year, market discussions focused on capital inflows, the risk of market softening and the sustainability of underwriting discipline. Investors increasingly emphasised a preference for structured investments, driven by a desire for contractual yield, downside protection and transparency. Strategic partnerships between asset managers and (re)insurers also deepened, reflecting a longer-term alignment around underwriting expertise and float management.

“We are seeing a fundamental shift in how institutional investors approach this market," said Cate Kenworthy, Managing Director, Howden Capital Markets & Advisory. "Capital is no longer chasing headlines or single events. Rather, investors are building long-term allocations with clear expectations around diversification, structure, and underwriting quality. The focus has moved from deployment to sustainability, and we view this as a healthy evolution for the asset class."

Looking ahead to the rest of 2026, Jarad Madea concluded: “Capital deployment and deal activity are expected to be shaped by heightened investor selectivity, fund life-cycle pressures and continued innovation in capital structures. As catastrophe bonds further entrench themselves as structural anchors within reinsurance programmes and more capital targets the sector, sustained performance will depend on disciplined underwriting, rigorous reserving and clear alignment between risk carriers and investors. In this environment, transparency, execution certainty and well-structured risk transfer will be increasingly critical as the reinsurance and ILS market continues to evolve.”