The catastrophe bond asset class, while growing strongly, is not seen as putting pricing pressure on reinsurers, with the main additional competition seen as coming from the traditional reinsurance market whose capital base has grown faster, analysts at J.P. Morgan have said.
With Artemis’ data showing that record issuance now stands at almost $18.35 billion year-to-date in 2025, across Rule 144A catastrophe bonds and the private cat bonds we have tracked, J.P. Morgan’s analysts estimate that within this has been somewhere over $6 billion in net new issuance, after allowing for maturities and redemptions.
Meanwhile, the traditional reinsurance sector’s capital has been building faster, with the J.P. Morgan analysts citing data from Aon that shows around $45 billion of new capital created by reinsurers in 2024.
When we last covered Aon’s data on global dedicated reinsurance capital, it showed that traditional reinsurance capital had grown by $123 million since the end of 2022, representing a 26% increase to reach $605 billion by the end of Q1 2025.
Alternative capital, across catastrophe bonds and other insurance-linked securities (ILS) structures had increased by $22 billion, or 24%, to reach $115 billion over the same period, according to Aon’s data.
Looking at the latest AM Best and Guy Carpenter projection for dedicated reinsurance capital as of the end of 2025, this suggests traditional reinsurance capital will grow over 23% from the end of 2022 to the end of this year, while cat bond and ILS capital will have grown more slowly by just under 19%.
“2025 has again been a strong year for the market with record levels YTD for both gross and net issuance,” J.P. Morgan’s analyst team wrote in their recent report. “On a net basis, allowing for the redemption of other bonds, there has been $6bn raised, which is close to record levels but is still a small percentage when compared to the total capital means of the reinsurance sector.”
Going on to say that, “We do not, however, view catastrophe bonds as being a particularly disruptive asset class for the reinsurers given their limited scale vs the traditional industry and focus on pure tail risks in most cases.
“As a result, we do not see the asset class putting pressure on reinsurance pricing, with the main additional competition coming from the traditional reinsurance industry.”
The analysts further explained that, “Capital in the reinsurance industry can clearly have an impact on pricing levels. In the last soft cycle, alternative capital entered the industry and led to reinsurance pricing softening, so we have some sympathy for concerns around new entrants into the reinsurance space. Looking at capital raised in the sector in 2025, there have been no major new entrants, with the current incumbents choosing to use their surplus returns to finance new business growth.”
Of course, if you were to segment the global tower of reinsurance capital by region and layer, to perhaps only look at higher-layers of US property catastrophe risk, then you may see the percentage growth in capital being increasingly supplied by the insurance-linked securities (ILS) market over the last year.
Although, at the same time traditional reinsurers still show strong appetites for US property cat risk, with many of the largest reinsurers continuing to expand their premiums in that segment at recent renewals as they capitalise on what is still seen as strong pricing.
The J.P. Morgan analysts also note the complimentary nature of catastrophe bonds and the fact they are utilised by many reinsurers as well.
“Catastrophe bonds are not in direct competition with most traditional reinsurance models but instead serve as a multi-year form of capital. They can provide benefits to issuers as well as producing attractive risk-adjusted returns in many cases, with only very few catastrophe bonds triggered in the history of the asset class,” they explained.
The analysts also noted that cat bonds and traditional reinsurance are also relatively aligned on ensuring their costs-of-capital are met, highlighting that, “Similar to the traditional reinsurance market, the ILS market saw an inflection point on prices and terms from 2023 onwards.”
Finally, the J.P. Morgan analyst team believes that the track-record of the ILS market needs to continue to improve over time for the sector to realise its capital raising potential.
Saying, “We believe that investors will look at the long-term returns offered by ILS and assess whether these are attractive versus other opportunities in the market. 2025 has again been a positive year so far, but using a 10-year track record, the returns have looked less attractive on average.
“Once this track record improves, we expect more capital will come to the industry, but we see such a shift as unlikely in the near term.”
Whether cat bonds and ILS are pressuring reinsurance pricing will likely remain a perennial question across the industry.
If you could break down the global reinsurance capital stack into the regions, perils and layers where the cat bond market is most prevalent, then it’s likely you would see more evidence for this efficient risk capital exerting some moderating pressure on pricing.
But, at the same time, you’d also need to consider how to calculate the benefit this provides to the traditional insurance and reinsurance market, and how that levers their own competitiveness, as this is meaningful as well.
