Insurance companies are selling catastrophe bonds at a record pace in 2025, passing on more climate risk to investors. These special bonds help insurers shift part of the financial burden from natural disasters—such as wildfires, hurricanes, and floods—onto those willing to take the risk in exchange for high returns.
So far this year, catastrophe bond sales have hit $18.1 billion, surpassing the previous record of $17.7 billion set in 2024, according to data from Artemis.bm, a specialist market tracker.
This comes even as parts of the world are hit by extreme weather. Texas and China recently experienced major floods, and Europe has been gripped by intense heatwaves and wildfires. Scientists say these disasters are becoming more frequent and severe due to climate change.
Insurers have already been paying out over $100 billion each year in natural catastrophe losses throughout this decade. Reinsurer Swiss Re recently warned that losses could reach as high as $300 billion in a particularly bad year.
“Insurers have no choice but to identify ways to offload increasing risk, and they’re doing it in the cat bond market,” said Richard Pennay, CEO at Aon Securities, which helps structure such deals.
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Why Investors Are Rushing In
For investors, catastrophe bonds offer an attractive source of income. These bonds pay regular returns, much like other bonds, but with one key difference: if a major disaster occurs, investors may lose their money. That risk hasn’t stopped demand from surging.
So far, investors have mostly escaped losses. Hurricanes Helene and Milton in 2024 caused minimal or no impact on bondholders. As a result, returns have remained strong. The Swiss Re Cat Bond Index shows a 14% increase in returns over the past year, and more than 50% growth over the past five years.
These returns have drawn in a wide range of new buyers—from institutional investors and hedge funds to endowments and family offices, said Steve Evans, editor-in-chief at Artemis.
Catastrophe bonds also offer an advantage: they aren’t closely tied to stock markets or traditional bond prices. This makes them a valuable option for investors looking to spread their risk.
“The increased issuance meets asset managers’ appetite to find a way to diversify,” said Tanguy Touffut, CEO of Descartes Underwriting, a firm specializing in insurance technology.
In April, the first exchange-traded fund (ETF) focused on catastrophe bonds launched on the New York Stock Exchange, making it easier for everyday investors to take part.
“They’re the juicy part of the fixed income spectrum at the moment,” said Pete Drewienkiewicz, Chief Investment Officer at Redington, a consultancy that is part of US-listed Gallagher. He compared catastrophe bonds’ strong yields with the shrinking returns seen in corporate bonds.
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Growing Climate Pressure Behind the Boom
Climate change is making natural disasters worse and more expensive. As the Earth warms, insurers are being forced to deal with bigger payouts more often. Traditional reinsurance—which helps them cover these large losses—is getting more expensive.
That’s why insurers are relying more on catastrophe bonds. This year’s bond offerings include billion-dollar deals from major insurers like State Farm and Florida’s state-backed Citizens, which have been hit hard by recent hurricanes and wildfires.
According to François Divet, head of Insurance-Linked Securities (ILS) at Axa Investment Managers, catastrophe bonds now also cover risks like earthquakes in India and floods in the UK. “The risks taken by insurers are constantly increasing for certain perils, which inevitably leads them to cede more and more risks,” he noted.
Last year was the hottest on record, with major disasters like the Valencia floods and California wildfires being made worse by global warming. As insurers face growing challenges, catastrophe bonds have become a go-to solution for managing and sharing that risk.