Catastrophe bond pricing has fallen by more than 20% year-on-year as of early March 2026, according to Gallagher Securities, with the company explaining that the softer pricing environment means that investors have been willing to allocate capital to riskier tranches of cat bond notes.
As the reinsurance and ILS market have softened, investors have become more willing to support riskier layers and tranches of cat bond notes, as well as certain frequency coverage structures.
One of the drivers is to sustain higher levels of return for end investors, which has led cat bond fund managers to become a little more accommodating to sponsors needs, it seems.
Gallagher Securities explained, “With the softening market, we have seen investors willing to invest in riskier tranches to maintain absolute return levels for their funds.”
Which does not seem so much about meeting target returns (expected return fund targets are usually in the single digits anyway), as perhaps sustaining returns nearer to the levels which have attracted a lot of new capital to the catastrophe bond asset class in recent years.
Gallagher Securities further explained that, “Although the broader reinsurance market has been softening as a whole, the cat bond market has been softening at a steeper rate.
“With the softening market, investors are willing to invest in riskier tranches, with roughly 18% of Q1 2026 issuance volume covering risks with expected losses below the 1-in-25-year return period.”
The Gallagher Securities team further stated, “As of early March, cat bond pricing was down over 20% year-over-year. For outstanding cat bonds as of March 27, 2026, the weighted average discount margin was 5.34% with a weighted average expected loss of 2.33%. This corresponds to a non-seasonality adjusted market multiple of 2.29 which is nearing a historic low.”
Catastrophe bonds have seen price declines that have outpaced traditional reinsurance so far, but it is important to note that the cat bond market is often the forerunner, when it comes to pricing changes in the market, given it trades throughout the year and is not restricted to just a handful of renewal seasons.
A key driver for the softening is of course the influx of capital into catastrophe bonds, as well as the recycling of capital from maturities.
The maturity effect should not be underestimated, as following a number of years of rising cat bond issuance the levels of maturities being seen are significant and so it does not take much in net-new capital to change the balance of the pricing environment.
It’s also important not to overlook the influence of large multi-strat and hedge fund investors that have entered the market in recent years, with some of these adding incremental capital at scale.
While at the same time other multi-strat asset managers have become more expansive in the catastrophe bond asset class over the last two years.
Gallagher Securities noted that cat bond sponsors are capitalising on the strong appetite being shown by investors, with this fuelling issuance and likely to lead to another banner year for cat bond issuance in 2026.
“As cat bond multiples having decreased by over 30% over the past two years. Through Q1 2026, we have already seen several first-time sponsors enter the cat bond market to capitalize on the pricing environment, and we anticipate new sponsors will continue to enter the cat bond market throughout the rest of the year,” the broker-dealer unit explained.
Q1 2026 catastrophe bond issuance neared record levels and the pipeline is building for new issuance into Q2.
“This year is showing early indications of becoming another strong one for issuance,” Gallagher Securities explained. “This continues the growth trend of the market in recent years, with total outstanding cat bond capacity doubling since YE 2021, when it sat at just over USD30 billion.”
All of which has also helped to swell alternative and ILS capital levels within the reinsurance industry.
On which Gallagher Securities said, “The strong fundraising environment has continued for investors, with overall non-life ILS AUM reaching USD135 billion as of YE 2025, roughly a 19% increase relative to YE 2024.”
