Record levels of catastrophe bond market issuance in 2025 are reshaping the pricing landscape, AM Best believes, but the rating agency sees no sign of a slow-down ahead, as “all indications point to continued growth.”Insurance-linked securities (ILS) market capacity is at an all-time high and , with the catastrophe bond market the largest component of this.While returns are down on the prior year at this stage, cat bonds continue to deliver spreads that remain attractive to investors, alongside the non-correlation with broader financial instruments and benchmarks and this continues to pull capital to the sector.AM Best said in a report released today that the reinsurance pricing landscape has been reshaped by cat bonds to a degree, highlighting the fact rates fell more in the upper-layers where cat bonds are most frequently seen, at recent renewals.

“Reinsurance pricing at the mid-year 2025 renewals was the most favorable pricing for cedents in a few years, indicating that competition among capacity providers has intensified.Capacity providers, particularly in segments supported by ample capital from insurance-linked securities (ILS) investors like catastrophe (cat) bonds, find market conditions attractive, and are willing to accept somewhat lower prices for the risks they are assuming,” the rating agency explained in a new report.Adding, “The softening trend at the upper layers can be attributed to strong capital inflows.

For example, the cat bond market, which tends to focus on the upper layers, has continued to attract investor capital.” Interestingly, other analysts believe .Discipline has been maintained though, on terms, conditions and attachment points.But AM Best does highlight the willingness of some traditional reinsurers to stretch terms again for clients, “This discipline will help with maintaining underwriting profitability even as risk-adjusted rates ease and therefore maintain solid returns while protecting against downside risk.

“However, amid a downward trend in pricing, there are some indications of marginal loosening of terms and conditions, as some reinsurers provide more flexible terms, which could continue at the January 2026 renewals.” Further softening is anticipated at the January 2026 reinsurance renewals, absent major loss activity.But AM Best noted that, “If reinsurers preserve discipline on coverage terms, even lower rates could perhaps produce acceptable returns resulting in adequate profits, but not as high as the ones observed during the peak of the hard market.” , falling lower than the previous two years on average so far in 2025.On which AM Best explains that, “Absent a US hurricane landfall in a major population center, there is momentum for the loss multiple to decrease even further due to available capacity exceeding demand.” But, returns still remain historically attractive, which is expected to drive ongoing investor interest.

“Full-year 2025 cat bond market returns are unlikely to match the levels observed in 2024; however, spread levels on the in-force deals and current levels of collateral yield suggest the 2025 return will be higher than the average observed from 2017 to 2022,” added Wai Tang, senior director, AM Best.AM Best explained in its report, “Despite the general trend of reductions in risk-adjusted spreads on new issuances since mid-2023, the weighted average spread level on cat bonds in-force as of the beginning of 2025 remained elevated and comparable to the level observed at the start of 2024.Collateral yields, such as the three-month US Treasury rate, may be lower in 2025 due to actions taken by central banks to lower short-term rates but remain elevated compared to 2021 and prior.” At the same time, the cat bond market is increasingly understood by and more accessible to investors, with a wave of interest seen this year.

Capacity is forecast to keep growing in the catastrophe bond market, as investors encounter and gain an appreciation for its risk-return profile and the available return streams that can be accessed through it.The cat bond structure is also increasingly embraced by a broader range of insurers and other sponsors, while .“The capital markets allow these insurers access to a broad range of investors, and the insurers in turn can get fully collateralized multi-year reinsurance,” Emmanuel Modu, managing director, AM Best commented.

All of which suggests AM Best is absolutely right.The catastrophe bond market is likely to keep growing and all indications point to this being a sustained trend in the provision of reinsurance capacity to the market by fund managers and their third-party investors..

We track , the most prolific sponsors in the market, most active , which risk modellers feature in cat bonds most frequently, plus much ., or via the which provides a handy one-page view of cat bond market metrics..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

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