Best’s Special Report: Catastrophe Bond Market Growth Accelerates, As Loss Multipliers Compress

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)--
A new AM Best report suggests that the insurance-linked securities (ILS) market will continue to grow in 2026, perhaps at a slower rate than last year with investors taking profits instead of redeploying capital in a softening market.

The Best’s Special Report titled, “Cat Bond Market Growth Accelerates, as Loss Multiples Compress,” notes that capacity continues to reach record level within the ILS segment, which has grown beyond its niche role to become more established with returning sponsors and cedants playing a role. Investors have recognized the attractive returns and diversification benefits.

“This growing market is giving investors more opportunities to invest, and it’s also diversifying in terms of including more risks based across perils and geographies,” said Emmanuel Modu, managing director, AM Best.

A new estimate prepared jointly by AM Best and Guy Carpenter projects that the ILS market reached USD 120 billion at year-end 2025, which was up from USD 107 billion at year-end 2024, according to the report. The 144A property catastrophe bond market reached USD 57 billion outstanding as of year-end 2025; the year-over-year increase from 2024 is nearly USD 12 billion. This type of property catastrophe bonds account for approximately half the ILS market’s capacity.

Reinsurance demand continues to increase, driven by expanding insured exposures, while the potential severity and frequency of natural disasters are rising due to climate change. With the catastrophe bond market softening, investors are exploring ways to attain higher yields. “Investors are allocating capital in line with their risk-return objective,” said Wai Tang, senior director, AM Best. “Some focus on risk-remote layers and accept lower yields in a soft market, while others seek higher returns or broader risk exposures by supporting lower-attachment transactions and private ILS deals, where yield compression has been less pronounced.”

The report notes that activity in the catastrophe bond market in 2025 was marked by many high-profile transactions that underscored the market’s continued evolution. Beyond an increase in overall issuance, these deals reflected expansion in the type of sponsors, perils, and geographic regions accessing the market. This serves as an encouraging indicator of the market’s long-term sustainability and growth, demonstrating that diverse insurers can effectively use cat bonds for risk transfer.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=363082.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.