Cat bond dynamics of 2025 suggest market likely to continue growing: Steiger, Icosa

2025 was another very successful year for catastrophe bond investors, who benefited from the strong performance of the asset class and the market dynamics witnessed suggest that the cat bond market is likely to continue growing, Florian Steiger, CEO of Icosa Investments AG has said.

Steiger explained in a new report that the catastrophe bond market “demonstrated its strong resilience and delivered a compelling performance” in 2025, highlighting the almost 11.5% return of the Swiss Re Cat Bond Index as signifying attractive returns for investors in the sector.

“This continued the positive trend of recent years and once again underscored the role of cat bonds as a diversifying component in multi-asset portfolios,” Steiger explained.

He noted that this performance is noteworthy versus the experience in other traditional asset classes over the last year, given the volatility driven by macro and geopolitical events from which the relatively uncorrelated catastrophe bond stayed immune.

Steiger said, “In this environment, the cat bond market offered a comparatively stable return profile and once again demonstrated its low correlation to many traditional risk assets.”

He further commented, “The year 2025 was once again very successful for cat bond investors and delivered strong performance, despite the wildfires at the beginning of the year. Supported by a record level of new issuance, the asset class continued to grow significantly and is playing an increasingly important role as a diversifier for a broader range of investors. The expanding market also led to a further improvement in secondary market liquidity, particularly outside the hurricane season.”

The Icosa Investments CEO went on to explain that the primary market for catastrophe bonds saw a “historic boom” in 2025, with issuance of new cat bonds breaking all records.

While natural perils remained the core focus for the catastrophe bond market in 2025, Steiger also notes the welcome continued expansion and growth into diversifying non-traditional risks, such as cyber and terror.

He commented that, “Increased demand for protection against such diversifying risks contributed to these segments accounting for a meaningful share of the primary market for the first time.”

Steiger also highlighted the record number of first-time sponsors that entered the cat bond market in 2025, calling this another positive aspect of the historic year.

“This indicates that a growing number of insurers and reinsurers are using cat bond issuance as a complementary component of their risk transfer strategies,” Steiger said.

Steiger of Icosa Investments also highlighted a healthy and positive year for the secondary cat bond market, with still improving liquidity that supports investors needs.

“Liquidity continued to improve, and price discovery and tradability strengthened further, particularly for standardized structures. As the outstanding market volume continues to grow, this trend is expected to persist. For investors, this creates additional opportunities to generate value not only through primary market participation, but also through active secondary market management,” he further explained.

Summing up, Steiger said 2025 was a very strong year for cat bond investors, with robust annual performance and any stresses, such as the California wildfires, only short-lived.

He also highlighted the payout of the Jamaica catastrophe bond, saying this provided, “A clear example of how quickly cat bond structures can deliver support following a severe natural event.”

Overall, Steiger believes the market dynamics witnessed in 2025 indicate a strong chance of ongoing expansion for the catastrophe bond sector.

“This dynamic suggests that the cat bond market is likely to continue growing,” he explained. “Market participants expect that record issuance volumes and the expanded sponsor base will also support a strong pipeline for 2026, particularly as investors continue to seek attractive risk-adjusted returns and insurers further diversify their sources of alternative capacity.”

It’s also worth highlighting that Icosa Investments itself had a highly successful year, more than doubling the assets under management of its flagship UCITS strategy the Icosa Cat Bond Fund, from $319 million at the end of 2024 to end 2025 with around $865 million of AUM.