In February, five months after Hurricane Helene devastated parts of Appalachia, the North Carolina Insurance Underwriting Association (NCIUA) successfully priced a $600 million catastrophe bond that incentivized pre-disaster risk reduction measures.
A first for such transactions after several earlier attempts had failed, the resilience feature stood out amid a booming year, and broke new ground, in the cat bond and insurance-linked securities (ILS) market. As of September 20, according to Artemis, this year’s total issuance of $18.6 billion had surpassed the $17.7 billion for all of 2024, and the $56.2 billion outstanding topped the $50 billion at the end of 2024, according to Artemis’ dashboard.
The NCIUA-sponsored Cape Lookout Re transaction, facilitated by Hanover Re and structured by GS Securities, provides NCIUA and its policyholders with three years of indemnity-based protection for named storm losses. A “resilience trigger” requires investors to pay the issuer an interest spread of 0.35% plus interest into an account if aggregate losses remain below 60% of the attachment point for the notes, helping the insurer to fund policyholders’ roof upgrades.
“We believe we’ll see more of this resilience feature in future cat bond deals, but it will most likely occur in the cat bond programs of state insurance pools,” said John Seo, co-founder and managing director of Fermat Capital Management, a top ILS-focused asset manager.
Individual insurance companies may also incorporate the feature, but it is particularly attractive to state insurance pools, since newly fortified roofs would enable policyholders to transfer coverage to less expensive options. Seo called it “a win-win for the homeowner and the state.”
Issued and outstanding notional, from Swiss Re Insurance-Linked Securities Market Insights, July 2025.
The overall market was driven in large part by cumulative inflation since 2022, which saw insurers increasing limits to ensure sufficient capacity to cover claims, according to Len Zaccagnino, head of ILS syndicate and trading, Swiss Re Capital Markets.
Another factor was cat bonds’ widening spreads in the wake of events such as Hurricanes Helene and Milton. The latter hit Florida’s west coast in October 2024.
“That brought more investor interest,” Zaccagnino said. “Investors who have been participating for more than a decade in the ILS market increased allocations, and the headline returns over the two years continue to bring new participants.”
U.S. windstorm and multiperil spread progression (source: Swiss Re).
Swiss Re anticipates a strong finish to this year, fueled by renewals as well as issuance from new sponsors. Zaccagnino anticipates a “very large pipeline” into 2026’s first half of maturing bonds that will contribute to what is expected to be another banner year.
Also contributing to the cat bond volume is the number of new issuers, likely to equal or just surpass last year’s 14. “New sponsors are mostly looking for peak peril coverage in U.S. wind, and to place their upper-tower limit in the cat bond market,“ covering the last amount of money in a claim, the Swiss Re executive said.
William Dubinsky, chairman of Gallagher Securities, said his firm anticipates volume of nonlife cat bonds to exceed $20 billion for the first time and continue growing in 2026.
“What you see is what you get” for both investors and protection buyers, he said. “Over the lifetime of the cat bond market, expected losses in the offering circulars more or less line up with historical performance of recoveries.”
At least eight of the new sponsors, including TD Insurance, Ocean Harbor Insurance Group and Florida Peninsula Insurance Co., were primary insurers, rather than the more common reinsurer issuers that aim to lay off risk to the capital markets.
Zaccagnino said more primary insurers are expected to take advantage of favorable market conditions to increase reinsurance capacity for wind and flood risk that complements their long-standing partnerships with reinsurers. They’re also targeting specific risks, he said, pointing to Sutton National Group’s inaugural cat bond in March that provides fire reinsurance protection in California.
“We expect to see more stand-alone wildfire risk transactions from sponsors that currently participate in the cat bond market or haven’t yet,” he said.
Seo also pointed to a “surprising increase” in cat bonds offering non-peak peril coverages instead of U.S. hurricane or California earthquake. A $100 million cat bond completed in May, for example, provides earthquake reinsurance coverage to an insurer in Japan and another in Germany, he said, noting its innovative structure providing a shared limit among two cedents as well as covering German earthquake risk for the first time.
He added that conductive storms may have crossed the line to become a primary peril, given the latest models estimate annual losses stemming from tornado and hail to be nearly double that of hurricane. But because they are high-frequency and moderate-severity perils compared to hurricane and earthquake, Seo said, they are usually covered by aggregate-loss triggered deals.
Carriers begin payouts in those deals after losses from different perils defined in the contract reach a specified level.
The first cat bonds covering cyber-related risk came to market at the end of 2023, and while only a handful of deals have been completed – three by specialty insurer and reinsurer Beazley – expectations for the segment remain high. In June, Man Group contended that, considering anticipated traditional-insurance premium growth of 10% annually, cyber is likely to experience steady growth in the cat bond market and to become a diversifying “third peak peril.”
Swiss Re was early into cyber, pricing the first industry-loss cyber cat bond in late 2023. Investors are awaiting completion of early deals’ life cycles in what Zaccagnino sees as “a proof-of-concept stage, and after that we’ll see more widespread issuance.”
Seo said that new entrants into the primary market for cyber insurance have temporarily dampened demand at the reinsurance level. Once those entrants “have reached their internal risk limits, we expect cyber risk to be one of the fastest growing lines of coverage in the cat bond market,” though beginning from a modest base.