The Reinsurance Renaissance

Insurance‑Linked Securities (ILS) let capital‑markets investors shoulder insurance risk — most visibly through catastrophe (“cat”) bonds. In a cat bond, investors collect a floating coupon until a contractually defined disaster (for example, a Category‑5 U.S. hurricane) breaches a trigger; at that point some or all principal transfers to the insurer to pay claims. Because wind speeds and fault‑line shifts have no link to GDP or earnings cycles, the pay‑offs are largely independent of traditional market drivers, giving ILS genuine diversification power.

Market Growth Hits Records

After a decade of steady expansion, the cat‑bond market smashed through every previous issuance record in July 2025: total new deals exceeded USD 17.8 billion, already eclipsing 2024’s full‑year high and putting the USD 20 billion milestone in sight. As of early June the outstanding market size had climbed to roughly USD 57 billion, a 16 % jump since year‑end 2024. European UCITS cat‑bond funds, an access point for wealth managers, grew assets by 24 % in the first half of 2025 to USD 17 billion, confirming that demand is no longer confined to institutional 144A buyers (“144A” is industry shorthand for a fast‑track institutional private placement that trades almost like a public security as long as the buyers are qualified institutions. For hedge funds, insurers and pension plans that means quicker access to niche opportunities without waiting for a full SEC registration).

Source: www.artemis.bm

Source: www.artemis.bm

Pricing Power and Yields

Higher attachment points (the dollar amount of losses that must be incurred before the cover “attaches” and begins to pay) agreed in 2023 have held and therefore implied lower expected‑loss metrics, yet spreads have stayed rich. By Q2-2024 investors were being paid an average 7.3 percentage points above expected loss — one of the three widest quarters in a decade. As of June 2025, the average coupon in the primary market stood at 10.9%, backed by a 6.5% risk spread; by comparison, U.S. high‑yield credit with similar default risk paid barely 3–4% of spread. The floating‑rate nature of cat bonds means today’s 5 % risk‑free rate drops straight to investors’ bottom line, often lifting all‑in yields into double digits even for conservative tranches.

Source: FRED, Artemis

Performance and Resilience

The Swiss Re Cat‑Bond Total‑Return Index returned 17.3% in 2024, its second‑strongest year on record, and has since added another ~14% through July 2025, taking five‑year cumulative gains to above 50%. UCITS funds echoed the trend with a 4.72 % gain in the first half of 2024 despite a brief spread spike in May. Swiss Re data show the asset class has delivered a positive monthly result nearly 90% of the time since 2002, including during the 2008 credit crisis and the 2020 pandemic.

Diversification When 60/40 Falters

When the 2022 inflation shock pushed equities and bonds down together, cat‑bond coupons kept paying because their triggers depend on meteorology, not monetary policy. Swiss Re’s ILS team calls the asset class “an excellent source of diversification” for allocators facing rising correlation risk. The first Brookmont Catastrophic Bond ETF, launched on the NYSE in April 2025 with an advertised yield near 10.5%, explicitly emphasizes that low correlation to conventional credit. This theme echoes a point we explored in an earlier piece, “What Do Trend Following and Insurance-Linked Securities (ILS) Have in Common?”, where we highlighted the diversification benefits of both strategies—especially during macro shocks that disrupt traditional portfolio construction.

Issuer Demand and Market Recalibration

Re‑insurance prices are still running hot. Consultancy Guy Carpenter tracks the going rate for covering U.S. property catastrophes; its index shows those prices jumped about one‑third during the 2023 contract renewals and have stayed at that higher level into 2024. Another broker, Howden Re, says the market is moving from the chaos of recent years toward a more orderly—but still pricey—reset. Even at the big 1st of January 2024 renewal, when headlines talked about “easing,” the cost of global property‑cat cover was still roughly 3 percent higher than a year earlier. Leadenhall Capital Partners’ (a London-based investment manager that specializes exclusively in ILS) renewal commentary emphasizes that higher attachment points — so many 2017–2022 events would now sit below deductibles — have held firm, supporting attractive risk‑adjusted returns even after modest premium easing.

Private Placements Versus Cat Bonds

Investors can access ILS via liquid cat bonds or less‑liquid collateralized reinsurance “private placements.” Leadenhall’s analysis shows private placements generally offer higher premium multiples across the risk tower, compensating for their quarterly liquidity and bespoke documentation. That illiquidity premium is most pronounced in higher‑expected‑loss layers, giving allocators latitude to blend instruments to suit their liquidity budgets.

Source: Leadenhall, 31.Dec.2024

The multiple in the above chart is simply spread ÷ expected loss (EL), so a larger number means fatter compensation per unit of modelled risk. Multiples for private placements become progressively higher (up to 61.2% higher for a 5% expected loss).

Implementation Considerations and Key Risks

Large pensions often mandate customized cat‑bond sleeves or hybrid side‑cars, while family offices prefer daily‑dealing UCITS vehicles; wealth platforms may turn to the new ETF wrapper. Regardless of route, prudent buyers diversify by peril, geography and trigger type, keep leverage low and stress‑test model assumptions.

Model error, peril clustering and secondary‑market illiquidity remain the principal hazards. Leadenhall’s June 2025 paper points out that disciplined underwriting, stable terms and elevated attachment points now mitigate some of the event‑severity risk, but investors should ladder maturities and maintain cash buffers for mark‑to‑market volatility.

Conclusion

With spreads still several multiples of expected loss, floating coupons bolstered by 5 % cash rates and a beta to equities close to zero, catastrophe bonds and related ILS provide rare, liquid access to equity‑like returns driven by forces orthogonal to economic cycles. For institutional and high‑net‑worth portfolios wrestling with correlated core assets, the reinsurance renaissance remains an actionable, income‑rich source of uncorrelated alpha — one that is deepening as 2025 sets yet another issuance record.