2025 – The year the original vision for catastrophe bonds was realised: Twelve Securis

With surging issuance and demand from investors in 2025, it was the year that the original vision for what the catastrophe bond market could become was realised, as they cemented their position as core protection and became a truly established asset class, investment manager Twelve Securis has said.

In a recent investor commentary on the performance of one of its catastrophe bonds funds, the specialist insurance linked securities investment manager acknowledged just what a landmark year 2025 was for the industry.

“2025 could be considered the year in which the cat bond market became a truly established, recognised and efficient asset class,” Twelve Securis stated.

Adding that, “After 25+ years of existence, cat bonds have long ceased to be niche or a novelty, however this could be viewed as the year in which the original vision of the pioneers of the cat bond market as a diversifying asset class and the natural home of severe catastrophe risk was fully realised, characterised by significant growth and demand.”

Increased market depth and breadth, in terms of sponsors, investors, deal-flow and activity levels has all contributed to the successes achieved in 2025.

As we’ve reported, numerous annual records were broken in the catastrophe bond market last year, some of which are the kinds of figures the original cat bond pioneers might have envisaged would be possible right at the start.

But it’s taken over 25 years to get the cat bond market to where it is today, a core component of global catastrophe reinsurance risk capital and an asset class with a broad and growing investor base.

The expansion of the investor base and still-growing investor awareness of insurance-linked securities as an asset class is key to the continued expansion of the cat bond market.

But, with losses relatively minimal for the sector in 2025 it has led to inevitable pressure on pricing.

Twelve Securis explained, “Investor interest has visibly widened, attracted by strong performance in 2024 and 2025 and continued value relative to comparable asset classes. A consequence of this is that while the market is demonstrating strong fundamentals, spreads have inevitably come under pressure, with an underlying trend of tightening persisting through to the last month of the year.”

However, still, historically high spread levels remain a feature of the cat bond market and the investment manager added that, “These factors have driven strong performance for a third year in a row.”

Looking ahead, Twelve Securis continues to expect good opportunities for its cat bond fund investors in 2026, but cautioning on the importance of discipline within the marketplace.

“We believe the fundamentals of the cat bond market are strong, and that the market offers good relative value. Nonetheless, as we move into 2026 in a heavily bid market it is extremely important that vigilance is maintained,” the ILS manager stated.

Continuing to say, “While we have generally observed good discipline in deal structuring, i.e. terms and conditions are not being pushed from recent market norms, there has been evidence of an increase in higher risk and opportunistic transactions, stretching of tranches, possibly targeting those in the market who focus on expected loss, as well as circumstantial evidence of reduced diligence on the part of some investors.”

While certain higher-risk catastrophe bonds may serve to boost returns, they come with additional risk of loss and so a disciplined approach to their analysis and any investment decisions are key.

Twelve Securis said its cat bond fund strategy will, “maintain its investment discipline and remain focussed on the delivery of returns over the longer term cycle with lower associated volatility.”

Further commenting on what to expect through 2026 in the catastrophe bond market, Twelve Securis explained, “Our expectation is that the pipeline of primary issuance will remain robust, though perhaps not at the levels seen in 2025, and that within the pipeline we will continue to find investments that are accretive to the portfolio.

“It is likely that levels of demand in the market and external factors will keep spreads around current levels, subject of course to the occurrence of material natural catastrophe events. Likely reductions in USD risk-free return may also impact overall return.”

For a detailed look at 2025 catastrophe bond market activity download our latest report here.

Remember, you can track data on the catastrophe bond market in our charts and visualisations as the year progresses. We update every chart with every new cat bond issuance that settles.