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Key 2025 Takeaways and Notes on the Year Ahead

2025 was another significant year for the catastrophe bond market as it reached new levels of growth and was heavily battle-tested. The Brookmont Catastrophic Bond ETF ($ILS), launched on April 1, 2025 with the goal of providing investors access to an asset class historically owned by larger, more sophisticated investors. This blog post is the first of hopefully many years-in-review.

When reflecting over the past year, one of the Brookmont PM team’s primary takeaways was how large the cat bond market has continued to become. By July, total cat bond issuance had already reached a new annual record of $17.8B. By year end (12/31/2025), new cat bond and insurance-linked security issuance ultimately achieved a one-year all-time high of $24.8B.

Cat bond deal sizes also increased. Midyear, when cat bond issuance hit a former one-year annual record of $17.8B (through 6/30/2025), the total issuance was achieved in 74 transactions, compared to the 95 transactions that occurred to reach the previous year’s record.

At the end of 2025, the total cat bond market was over $61.3B, and the insurance-linked securities marketplace (of which catastrophe bonds are a subset) grew significantly on a year-over-year basis and achieved a record breaking $24.8B in annual new issuance in the calendar year.

From ILS inception through the end of 2025, the ETF posted 5.88% net return(1). This performance, in our opinion, appears attractive when compared to other areas of the bond market.

Also noteworthy is the lack of impairments experienced by the holdings within ILS in 2025. White the fund did not hold any of the debt impacted by the complete $150M payout of Jamaica's World Bank-sponsored parametric cat bond following Hurricane Melissa, the cat bond market was impacted more broadly. Attentive investors generally consider that the anticipated impairment rate (also called the expected loss rate) for catastrophe bonds has historically been 2.45%. We believe that the lack of impairment of ILS holdings in 2025 is another feather in the fund’s cap for the year.

Overall, we believe 2025 demonstrated yet again the growing investor appetite for alternative assets and a trend we don’t expect will slow much, if at all, in 2026.

Looking ahead, rating agencies such as Moody’s are already expecting another strong year of cat bond issuance thanks to high risk-transfer needs from insurers and governments, and investor demand for diversification and returns.

Here are some potential themes that we believe investors should watch for in 2026:

  • More perils and more sponsors. We believe cat bonds are likely to continue further diversification beyond U.S. hurricanes, and the marketplace will include deals covering more perils from more regions and issued by more sponsors. These deals will likely cover earthquakes, windstorms, and possibly wildfires or floods, expand into European coverage and may come from smaller insurers and sovereigns following Jamaica’s example. Nearly $14B of existing cat bonds are set to mature over the next year, giving issuers a natural opportunity to refinance into new 2026 deals. Now that cat bond reinsurance is a proven method, it’s likely we’ll see a broader set of threats covered and by more participating organizations.
  • Increased analysis of wildfires. 2025 is the most active year ever for wildfire-exposed cat bonds, with over $3.3 billion of such issuance (more than the previous record in 2024 and despite huge LA wildfire losses). Risks from wildfire-related losses as their ferocity increases has left insurers and utility providers looking for solutions to offload risk.
  • Still-attractive spreads, but some compression. As capital keeps flowing into cat bonds and competition grows among more issuers, coupons may edge down, but are still likely to exceed similarly rated corporate bonds.
  • Product innovation. With the growing investor interest in cat bonds, it’s likely that we’ll see new products and commingled funds from more, non-institutional organizations to create greater access for retail investors.
  • Climate and model risk in the spotlight. After costly 2025 wildfires and other disaster-related losses in the broader insurance marketplace, investors will scrutinize catastrophe models and deal structures even more closely. However, investors have more access to data and an opportunity to educate themselves better today than perhaps ever before.

We remain convinced that cat bonds are no longer an obscure corner of the reinsurance industry; they’re becoming a mainstream risk-diversifier. This means that for investors looking to access them, 2026 could offer continued growth, solid income, and genuine portfolio diversification.

 

Sources:

Brookmont Capital Management

Insurance Journal

Artemis

The World Bank

Reinsurance Business Magazine

 

Full list of sources:



1 The ILS ETF was incepted on 4/1/2025. Performance quoted is net of fees.

Performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For the most recent month-end performance, please call (888) 671-6273 or visit the Fund’s website at https://ilsetf.com/ils."

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