Cat bonds now “structural anchors”. Investors look to long-term ILS allocations: HCMA

Catastrophe bonds and insurance-linked securities became increasingly embedded in reinsurance programmes in 2025, a trend set to continue as investors increasingly look to long-term allocations to the asset class, executives from Howden Capital Markets & Advisory (HCMA) have explained.

Reflecting on a busy year for cat bonds and ILS in 2025, HCMA explained that, “Investor appetite across reinsurance and insurance-linked securities (ILS) evolved markedly in 2025, as capital continued to flow into the sector amid attractive risk-adjusted returns and growing institutional confidence.”

Over the course of last year’s record levels of issuance, “catastrophe bonds continued their shift from niche to mainstream reinsurance tools,” HCMA stated, with the cat bond reinforced as a core component of reinsurance towers, no longer being viewed as “a specialist alternative.”

Investor demand met the opportunity, with strong appetites and a market flush with capital from maturities driving double-digit spread tightening by the end of the year.

While HCMA believes that pricing remained attractive for both sides of the cat bond trade, they noted that, “Increasingly competitive economics, often versus traditional reinsurance, accelerated catastrophe bonds’ evolution into structural anchors within reinsurance programmes.”

Mitchell Rosenberg, Co-Head Global ILS stated, “What we saw through 2025 and into the January renewals was catastrophe bonds firmly establishing themselves as a core component of clients’ risk management frameworks. Sponsors are no longer using the market solely to supplement capacity; instead, they are leveraging it to introduce durability, diversification, and pricing clarity into their reinsurance strategies – shifting from a more tactical to a clearly strategic use of capital markets capacity.”

Jarad Madea, CEO of Howden Capital Markets & Advisory, added, “These renewals underline how closely capital markets and reinsurance outcomes are now linked. As the market rebalances, the ability to connect traditional reinsurance with ILS, catastrophe bonds and collateralised structures is no longer optional. It is central to building resilient, efficient programmes in a more competitive environment.”

Investor sentiment for cat bonds and other insurance-linked securities strengthened through 2025, helped by consecutive years of strong performance and investor-realisation that the reset in terms had proven sticky, driving rising institutional confidence in the ILS asset class.

“Early investors who entered the market following Hurricane Ian are now largely deployed and remain committed, while new capital, including first-time entrants such as CalPERS, was drawn by relative value versus traditional credit markets. As appetite broadened, investors increasingly sought diversification beyond peak catastrophe risk, including non-cat exposures and alternative structures,” HCMA commented.

Throughout 2025 there was a focus by investors on understanding the influence of capital flows into ILS, the chances of market softening occurring, as well as just how sustainable underwriting discipline might prove to be.

Investors sought out “structured investments, driven by a desire for contractual yield, downside protection and transparency,” HCMA said, further explaining that strategic partnerships between asset managers and re/insurers deepened, which the broker-dealer unit said reflects “a longer-term alignment around underwriting expertise and float management.”

“We are seeing a fundamental shift in how institutional investors approach this market,” explained Cate Kenworthy, Managing Director, Howden Capital Markets & Advisory. “Capital is no longer chasing headlines or single events. Rather, investors are building long-term allocations with clear expectations around diversification, structure, and underwriting quality. The focus has moved from deployment to sustainability, and we view this as a healthy evolution for the asset class.”

Jarad Madea provided an outlook for the rest of 2026, saying that, “Capital deployment and deal activity are expected to be shaped by heightened investor selectivity, fund life-cycle pressures and continued innovation in capital structures. As catastrophe bonds further entrench themselves as structural anchors within reinsurance programmes and more capital targets the sector, sustained performance will depend on disciplined underwriting, rigorous reserving and clear alignment between risk carriers and investors.

“In this environment, transparency, execution certainty and well-structured risk transfer will be increasingly critical as the reinsurance and ILS market continues to evolve.”