A new report from analysts at J.P. Morgan has suggested that while the catastrophe bond market has witnessed exceptional growth in 2026, insurance-linked securities (ILS) and alternative capital are looking more disciplined, exhibiting few of the undisciplined behaviours witnessed in the last soft market.
As highlighted in Artemis’ Q2 2026 Cat Bond & ILS market report, the second quarter of 2026 marked the largest ever quarter recorded for cat bond issuance, as it became the first-time quarterly issuance surpassed $11 billion, beating the previous record set in H1 2025 by over $842 million.
Q2 2026 also featured the largest month of cat bond issuance since Artemis began tracking the sector, as the record 20 deals completed in May brought almost $7 billion of risk capital to market.
“2025 saw more than $25bn raised for deployment in the sector via catastrophe bonds. On a net basis, allowing for the redemption of other bonds, $12bn was raised which was the largest net addition to the space on record,” J.P. Morgan’s analysts explained.
Adding: “As we look at the market YTD in 2026, more than $18bn has been raised. On a net basis, $4bn has been raised in 2026. While this is a lower level than 2025, it has already surpassed the 10‑year average. 2025 had $18bn of catastrophe bonds issued and net issuance of more than $6bn for the same period.”
Furthermore, J.P. Morgan said that it continues to view catastrophe bonds as a “useful capital tool for issuers and an attractive risk-adjusted investment” given that the bonds have rarely been triggered, in their 20-year history.
“Capital in the reinsurance industry is one of the major drivers for pricing levels. In the last soft cycle, 2013-17, 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,” the analysts added.
“Looking at capital raised in the sector in 2025, there have been no major new entrants in the traditional industry. In this cycle, it appears that it has mainly been redeployment of capital by the traditional industry that has driven pricing so far in 2026,” the report continued.
Additionally, Artemis’ data also shows that catastrophe bonds currently represent approximately $65 billion in capital on an absolute basis, a figure that has consistently increased since 2019.
Furthermore, J.P. Morgan highlights that catastrophe bonds now account for around 8% of total reinsurance industry capital.
“We maintain our view that catastrophe bonds are not an especially disruptive influence on reinsurance pricing. Investors have multiple alternative avenues where they can invest and the instruments tend to be relatively loss free on an annual basis,” the analysts noted.
The ILS market has performed favourably in 2026. As of year-to-date 2026, the ILS performance stands at 3.93%, which is an increase from 2.04% compared to the same period in 2025.
J.P. Morgan’s analysts acknowledged that the asset class experienced a challenging start to 2025, primarily due to the impact of the Los Angeles wildfires; however, it rebounded thereafter, achieving a return of approximately 11% in 2025. The robust performance in both 2025 and year-to-date 2026 follows two consecutive years of exceptional performance in 2023 and 2024, which saw returns in excess of 13%.
The analysts went on to note that they believe investors will look at the long-term returns offered by ILS and assess whether these are attractive versus other opportunities in the market, whilst highlighting how 2026 has again been a positive year so far, with 3.9% YTD return, 8% on an annualised basis.
“Despite the growth in catastrophe bonds, we see the current alternative market as well disciplined with few of the behaviours that we saw in the last soft market when some entrants disrupted the entire industry, either by using overly optimistic views of risk or by targetting far lower return hurdles,” J.P. Morgan added.
Concluding: “The long-term track record of the asset class has improved after difficult years in 2017-
2022, with the 10 year rolling average return now 3.2% with more recent experience far
more favourable.”
