Investor appetite for reinsurance and ILS rises amidst capital flow last year

Howden says 2025 catastrophe bond issuance rose about 45% versus 2024.

Last year was a record year for catastrophe bond issuance, with investor appetite for reinsurance and insurance-linked securities (ILS) strengthening further as capital continued to flow into the sector, according to Howden Capital Markets & Advisory.

Catastrophe bond issuance in 2025 was around 45% higher than in 2024, driven mainly by a greater number of transactions rather than larger deal sizes. 

The firm said both new and repeat sponsors used catastrophe bonds as a core part of their risk transfer programmes, rather than as a specialist alternative to traditional reinsurance.

Investor demand kept pace with supply. Strong appetite and a wave of maturities in the second half of the year led to double-digit spread tightening by year-end. 

Pricing remained attractive for sponsors and investors, and catastrophe bonds became increasingly competitive with traditional reinsurance. 

As a result, they are now seen as structural components of reinsurance programmes.

Mitchell Rosenberg, co-head of Global ILS at Howden Capital Markets & Advisory, said catastrophe bonds were firmly established as part of clients’ risk management frameworks through 2025 and into the January renewals. 

“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,” he said in a media release.

Jarad Madea, CEO of Howden Capital Markets & Advisory, said the renewals showed how closely linked capital markets and reinsurance outcomes have become. 

He said the ability to combine traditional reinsurance with ILS, catastrophe bonds and collateralised structures is now central to building resilient and efficient programmes in a more competitive environment.

Investor sentiment towards reinsurance and ILS improved during the year, supported by attractive risk-adjusted returns and growing institutional confidence. 

Early investors who entered the market after Hurricane Ian are now largely deployed and remain committed. 

As appetite broadened, investors sought greater diversification beyond peak catastrophe risks, including non-catastrophe exposures and alternative structures. 

Investors showed a stronger preference for structured investments offering contractual yield, downside protection and transparency. 

Strategic partnerships between asset managers and (re)insurers also deepened, reflecting longer-term alignment on underwriting expertise and capital management.

Cate Kenworthy, managing director at Howden Capital Markets & Advisory, said institutional investors are increasingly building long-term allocations with clear expectations around diversification, structure and underwriting quality, with a focus on sustainable performance rather than short-term deployment.

Looking ahead to the rest of 2026, Madea said capital deployment and deal activity are expected to reflect higher 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,” Made said. “In this environment, transparency, execution certainty and well-structured risk transfer will be increasingly critical as the reinsurance and ILS market continues to evolve.”