Catastrophe Bonds Surge to Record $18.1B as Insurers Offload Climate Change Risk

Strategic Insights -

Insurers are increasingly turning to catastrophe bonds to transfer the growing risk of climate change to investors, with issuance surging to a record $18.1 billion so far this year. As extreme weather events become more frequent and intense, insurers have had to pay out over $100 billion in natural catastrophe losses every year this decade, a number that could reach $300 billion in a peak year, according to Swiss Re.

Key Takeaways:

  • Insurers are selling catastrophe bonds at a record rate, with $18.1 billion issued so far this year, compared to the previous record of $17.7 billion for the whole of 2024.
  • The surge in issuance comes as much of the world grapples with extreme weather, including devastating floods in Texas and China, and back-to-back heatwaves in Europe.
  • Insurers have had to pay out over $100 billion in natural catastrophe losses every year this decade, with this number potentially reaching $300 billion in a peak year.
  • Catastrophe bonds are a form of reinsurance that allows insurers to give investors regular payments to assume some of the risk from events such as extreme weather.
  • Returns from the catastrophe bond market have been strong, with an industry-wide Swiss Re index showing a 14% total return over the past year and over 50% over the past five years.
  • The 2025 issuance surge includes big US insurers such as State Farm and Florida's state-backed Citizens, which have come under pressure from a string of hurricanes and wildfires.
  • The increased issuance meets asset managers' appetite to diversify their investments at a time of market volatility, and investors are attracted to the lack of correlation between catastrophe bond returns and the broader financial market.
  • The catastrophe bond market is widening in appeal, with the launch of the first exchange traded fund for such bonds on the New York Stock Exchange in April and interest from large institutional investors, multi-strategy hedge funds, endowments, and family offices.

Statistics:

  • $18.1 billion: Total catastrophe bond issuance so far this year.
  • $17.7 billion: Previous record for catastrophe bond issuance (2024).
  • $100 billion: Average annual natural catastrophe losses for the decade.
  • $300 billion: Potential peak year natural catastrophe losses (predicted by Swiss Re).
  • 14%: Industry-wide Swiss Re index total return from the catastrophe bond market over the past year.
  • 50%: Industry-wide Swiss Re index total return from the catastrophe bond market over the past five years.
  • 1st Quarter of 2025: Catastrophe bond issuance, compared to $17.7 billion for the whole of 2024.

Sources:

  • Artemis.bm: Specialist data provider
  • Swiss Re: Insurance company and data provider
  • Aon Securities: Insurance company and Aon Securities chief executive Richard Pennay was quoted in the article
  • Axa Investment Managers: Insurance company and Tanguy Touffut, chief executive of insurance technology firm Descartes Underwriting, was quoted in the article
  • Redington: Consultancy and Pete Drewienkiewicz, chief investment officer, was quoted in the article
  • Artemis: Editor-in-chief Steve Evans was quoted in the article