Cat bonds see ‘record issuance’ in 2025’s H1 as alternative capital comes out of hibernation – Moody’s Ratings

Alternative capital models deployed in the reinsurance market – such as catastrophe bonds and reinsurance sidecars – have seen a “record issuance” in 2025’s first half “after hibernating for a number of years”, according to James Eck, vice-president and senior credit officer at Moody’s Ratings.

Alternative capital refers to models whereby reinsurers transfer risk by tapping into capacity supplied by the financial markets – for example, hedge funds, mutual funds, sovereign wealth funds, pensions and institutional investors.

This approach can help reinsurers “to lower their own total cost of capital, manage peak risk exposures, improve risk adjusted returns, provide sources of fee income and enhance their overall competitive positioning in the global reinsurance sector”, Moody’s Ratings clarified within its global reinsurance market outlook report, which was published today (2 September 2025).

Addressing trade journalists at an accompanying press briefing to promote the newly published repot, held at The Ned in London, Eck explained that “through the first half of 2025, the issuance of cat bonds exceeded 2024’s full-year issuance”, demonstrating that this approach is “growing again after hibernating for a number of years”.

The report stated that usage of alternative capital tools had grown 24% since the end of 2022, providing around $115bn (£85bn) of capacity to reinsurers – this equated to “about 16% of the estimated $720bn (£533bn) of total global reinsurance capital”, the report added.

It continued: “Year to date 2025 cat bond issuance has already eclipsed the record $17.7bn (£13.1bn) issued in 2024, confirming the increasing appeal these securities have among both institutional investors and ceding companies.

“The recent growth in the alternative capital market capacity has been led by catastrophe bonds, which are now an integral component of many cedents’ property catastrophe reinsurance programmes.”

‘Swing’ capacity

Eck told attendees that alternative capital could be described as “swing” capacity in the reinsurance market, meaning that it “can have an impact on traditional market pricing in certain areas” by tipping “the supply-demand balance for property catastrophe reinsurance to an oversupplied capital position”.

He continued: “With the growth in cat bonds, we’re seeing some pressure in the top end of programmes, the risk remote layers. We’ve seen that during the 2025 renewals. We may see it again next year.”

Eck added that although more pressured, competitive pricing was evident in the risk remote layers of reinsurance programmes, the lower levels remained “stable” – which presented a “mixed bag” at the last renewal season.

“A lot of reinsurers do play in those lower layers – you can get a lot of premium,” he noted.

“But then you have to make sure that you are managing that exposure of retroceding it out and that’s where alternative capital has played an increasing role in recent years.

“There’s not a lot of balance sheet reinsurers providing retro, but there are sidecars they can use, they can use cat bonds to get aggregate retro coverage on an index basis.”

Salman Siddiqui, associate managing director at Moody’s, added that reinsurers looking to move into lower levels of reinsurance programmes to avoid pricing pressure at the top end must be aware that this shift could come with higher costs, however, as a greater likelihood of claims means more claims expertise is required, as well as high quality relationship management.