Cat bond issuance of $6.4bn in Q1 2025 was the largest Q1 issuance on record, according to data tracked by Insurance Insider ILS.
Q1 issuance was 56% larger than Q1 2024 and is the third largest quarter for volume issued since 2022.
Sources canvassed by this publication suggested that current pricing levels go a long way to explaining the volume trend.
One cat bond manager said: “Cat bond pricing is very favourable for sponsors, and investors have a lot of cash, so sponsors are viewing this as the best time to issue cat bonds.”
The weighted average spread on cat bonds in Q1 was 685 basis points (bps), level with Q4, with bond pricing having stabilised at around levels last seen in Q4 2021.
Sources indicated that in Q1, new inflows and bond maturities meant managers were flush with cash, while on the demand side, sponsors expedited deals to take advantage of the relatively benign pricing environment.
Broker Aon noted in its Reinsurance Market Dynamics report that most of the Q1 volume growth was driven by existing sponsors moving deals to Q1, as opposed to waiting.
This was the case with Axis’s Northshore Re wind and quake bond, which has in the past placed in Q2, Q3 or Q4.
Axis upped the sized of the deal this year by 43% to $200mn, compared to Northshore Re deal placed in Q2 2022, which secured $140mn of limit.
Meanwhile, Q1 maturities totalled $4.2bn as several large deals expired, including $330mn of Lookout Re 2022-1 notes from the North Carolina Insurance Underwriting Association.
FEMA’s Floodsmart Re 2022-1 A and Brit’s Sussex Capital 2020-1 were among the other large Q1 maturities, at $325mn and $300mn respectively.
Florida risk and economic inflation boost issuance volume
Additionally, Q1’s bumper issuance was boosted by growth in Florida-focused bonds, which accounted for 25% of the total.
Florida windstorm deals comprised $1.67bn of Q1 new issuance, having grown 57% compared to $1.06bn in Q1 last year.
American Integrity spoke for a third of Florida-focused Q1 issuance, securing $565mn for its Integrity Re deal, an 85% increase on the prior year.
The sponsor was able to place three of the six notes this year on three-year terms, the Class A2, B2 and C, whereas all four of last year's notes were placed as two-year deals, suggesting American Integrity looked to capitalise on the more attractive pricing by locking capital for longer.
Kin secured $300mn of Florida storm protection, in addition to a $100mn note placed in 2023 that expires in March 2026.
Sources noted that another factor behind bumper Q1 issuance is economic inflation, which continues to drive growth in exposures.
“Continued inflationary pressures, even if it has somewhat levelled off, is the driver behind the growing need for sponsors to transfer risk to the capital markets,” said a source.
US inflation has returned to around 3%, in line with 2020 levels, having fallen from a peak of above 8% at the end of 2022, according to the Bureau of Labor Statistics’ adjusted consumer price index.
Index deals offering lowering multiples than indemnity bonds
One specific trend that emerged in Q1 was that pricing multiples on bonds with index triggers, at 2.8x on average, were considerably lower than the 4.4x average multiple achieved on indemnity deals.
Sources have suggested that this is partly down to a “handful of managers” with index-only mandates filling the market with capital and ultimately pushing multiples lower.
“Managers with index-only mandates will put their capital to work, and with only a set number of index deals in the market, their capital will materially drive the prices of those deals lower,” said one cat bond manager.
Of the 46 notes placed in Q1, eight had an index trigger, around 17%.
Multiples on index cat bonds could face further downward pressure if, as some sources expect, protection buyers want less ILW limit for the upcoming wind season versus 2024.
This would lead to more available capacity for index cat bonds from managers with index-only mandates.
Weighted average spreads remained stable in Q1
With well-matched drivers on the supply and demand sides of the market, the weighted average multiple was 4x in Q1, a slight increase from 3x in Q4 last year.
Nonetheless, many sponsors placing deals in Q1 this year achieved more favourable multiples compared to prior-year purchases.
This was the case with GeoVera’s Veraison Re earthquake deal, with this year’s Class A note paying a multiple of 2.5x and a spread of 350bps for a deal with a time-independent expected loss of 1.42%.
In comparison, 2024’s Class A tranche paid a multiple of 4.7x and a spread of 475bps for a less risky deal, with a time-independent expected loss of 1.02%.
The trend was also evident in Security First’s First Coast Re Florida named storm bond.
This year’s Class A note paid a multiple of 4.3x and a spread of 650bps, with an expected loss of 1.50%.
This compares to the 2023 deal paying a multiple of 6.3x and a spread of 900bps, with an expected loss of 1.42%.
Cat bonds priced below the midpoint of guidance in Q1
Bonds priced below the midpoint of initial spread guidance by 5.5% on average in Q1, continuing a trend from Q4 last year.
In Q4 2024, the average spread was 822bps and settled 6.6% below the midpoint of guidance range on average.
Many sponsors were also able to upsize deals compared to initial targets.
American Integrity doubled the size of the Class A2 note in its state-based named storm Integrity Re III 2025-1 deal, to $100mn, while pricing settled 24% below the midpoint of guidance at 800bps.
In the case of Kin’s Hestia Re 2025-1, the Class A note doubled in size to $200mn, while the spread fell 11% from the midpoint to 675bps.
Pipeline of deals is healthy for Q2
The momentum for deals to upsize and down-price from initial targets was showing few signs of slowing as of the first week of April.
On a weighted average basis, deals that placed last week increased in size by 35%, and priced 8% below the initial midpoint of guidance.
Sources expect the market to continue on a similar path through Q2, with a strong pipeline of potential deals to match the capital available from maturities and fresh inflows.
In terms of maturities, around $4.9bn of cat bond limit is due to expire in Q2, according to data tracked by Insurance Insider ILS.