2025 is shaping to be another strong year for catastrophe bond and insurance-linked securities (ILS) issuance following record growth seen across the market last year, despite the fallout from the Los Angeles wildfires in January, says global ratings agency AM Best.
Full-year catastrophe bond and related ILS issuance hit a record $17.7 billion in 2024 as fourth-quarter issuance of $4.5 billion more than offset a quiet third-quarter, taking the outstanding market to a new high of $49.5 billion, Artemis’ latest quarterly cat bond report shows.
In its latest ILS Market report, AM Best noted that 2025 has got off to a “rocky beginning” due to the impact of the Los Angeles wildfires in January, with insured loss estimates from the wildfires currently ranging between $35 billion – $50 billion.
We previously reported that the mark-to-market impact to catastrophe bonds from the wildfires had risen, with a number of cat bond names seeing further mark-downs on pricing sheets, while some aggregate cat bonds saw negative movements that had not done so before.
In addition, the Swiss Re Global Cat Bond Index posted a return of -0.85% in January, which suggests that, although the ILS market is well positioned for another year of strong returns in 2025, returns could very well fall further from 2023 and 2024, AM Best explained.
As we reported earlier today, the quantum of the wildfire impacts to certain ILS fund strategies is now clearer, with full January performance data available for the ILS Advisers Index.
“January insured loss volumes tend to be relatively mild, but that is not the case in 2025, given the horrific wildfires in the Los Angeles area. Insured loss estimates from the wildfires are in the USD 35 billion to USD 50 billion range, with considerable uncertainty due to factors such as demand surge, smoke damage, and potential subrogation,” the agency said.
However, despite such a significant early-year loss, AM Best highlighted several key reasons why it expects the cat bond and ILS market to continue its momentum following back-to-back record years.
In terms of 144A property cat bond issuance, 2024 set a new record of $16.6 billion, surpassing the previous high of $15 billion in 2023. AM Best also noted that issuance sizes grew by an average of 38% from initial targets, nearly matching the 40% increase seen in 2023.
At the same time, the market also delivered strong returns to investors, with the Swiss Re Global Cat Bond Index returning 17.3% in 2024, just slightly below the index’s record gain of 19.7% in 2023.
On the other hand, AM Best expects issuance volumes to remain strong in 2025 due to a busy calendar of maturities totalling $11 billion this year, which frees up capital for refinancing, along with the build out of the market into nascent segments such as parametric and cyber.
So far in 2025, Artemis has already tracked over $5.5 billion of settled new catastrophe bond issuance, while the market pipeline for deals yet to complete stands at almost $1.9 billion, showing the cat bond sector on record-setting pace this year.
“The use of parametric triggers in 144A cat bonds is still modest at this point, with most primary insurer sponsors showing a strong preference for indemnity covers. In the broader reinsurance market, the greater availability of capacity in 2024 over 2023 meant that indemnity cover was more attainable. Nonetheless, issuance of 144A parametric cat bonds grew to USD 1,400 million in 2024, from USD 600 million in 2023,” AM Best said
On cyber cat bonds, the agency added: “With improved modeling and understanding of potential cyber loss scenarios, further deals are expected, and the cyber catastrophe bond market is expected to grow in 2025 and beyond. Fueling this growth is the demand for cyber solutions that is expected to grow as the cyber peril is of increasing concern to businesses globally.”
You can download all of Artemis’ quarterly catastrophe bond market reports here.
