As cat bond loss multiples tighten, AM Best urges investors towards greater selectivity

As catastrophe bond loss multiples continued to tighten in the opening half of 2026, rating agency AM Best has emphasised that a combination of rising expected losses and softer returns could force investors to become more selective ahead of the upcoming January 1st renewals.

The 144A property catastrophe bond weighted average loss multiple continued to tighten in the opening half of 2026, which as AM Best indicated in a recent report, is further evidence of abundant investor capital and investor willingness to accept a lower premium for the risk.

Using Artemis’ data and its own research, AM Best highlights that the average loss multiple in H1 2026 was 2.5x, a considerable decline from 3.28x from the same period last year, but a slight increase from H2 2025’s 2.40x

For 2026 to-date, the loss multiple of issued catastrophe bonds is tracking at 2.4x, a notable decrease from 2025’s 3.0x and 2024’s 3.71x.

You can analyse catastrophe bond loss multiples, by year and by quarter of issuance in our interactive charts:

Moreover, AM Best’s report also highlights that the weighted average spread fell 96 basis points as weighted average expected loss drifted higher by 30 basis points compared to the cohort of cat bonds issued in the first half of 2025.

“The general upward trend in the expected loss reflects growth in exposure, higher modeled losses, and attachment points that have not risen commensurately,” the agency noted.

Further in the report, AM Best acknowledged how 2026 year-to-date (YTD) ILS market returns as of the end of June 2026 are slightly higher than the same period in 2025.

“The Swiss Re Global Cat Bond Index returns increased from 2.8% to 4.1%. The ILS Advisers Index returns increased from 2.3% to 3.9%. There is a lot of stability in the 2026 YTD returns as the monthly returns are very similar in both referenced indices. The 2025 returns for the same time period were a bit lower due to the California wildfires,” the report reads.

Overall, AM Best emphasises that the decline in returns seen within the ILS market is primarily attributed to the tightening of spreads and lower collateral yields in comparison to the levels observed in 2023, rather than the effects of catastrophic event losses.

AM Best also stressed that the unprecedented surge of capital has led to supply exceeding demand, and a softening in the market as well as a compression of returns.

However, with expected loss numbers for 144A catastrophe bonds having seen an increase compared to prior periods, the agency indicates that this reflects a higher exposure to loss.

Nevertheless, should losses increase, returns are expected to compress further in 2026.

All of which prompts AM Best to suggest that investors might choose to adopt a more judicious approach in their capital allocation within the market, potentially concentrating on particular risk profiles that appeal to them.

“Taken together, record cat bond issuance, record ILS capacity, and softer, though still positive, YTD returns reflect the same abundant-capital dynamic that has driven mid-year pricing lower across the reinsurance market. With attachment points facing renewed pressure and expected loss levels drifting upward, the trajectory into the January 2027 renewals will depend heavily on whether the remainder of the North Atlantic hurricane season stays benign,” AM Best concludes.

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