What’s the outlook for Cat bonds in 2026?
The market for insurance-linked securities (ILS) remains on a growth track in in 2026, although it may be slower than last year as investors take profits rather than redeploy capital into a softening market, says a new report from AM Best.
Capacity is climbing, and the segment “has grown beyond its niche role to become more established with returning sponsors and cedants playing a role,” the ratings agency notes.
Investors are increasingly interested in the diversification of ILS offerings, including cover for “more risks based across perils and geographies,” says Emmanuel Modu, managing director of AM Best. And that includes Canada.
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“A large number of catastrophe bonds have historically covered Canadian exposures combined with U.S. exposures,” Matt Tuite, director of insurance-linked securities at AM Best, tells Canadian Underwriter. Cat bonds are ILS instruments, in which insurance companies keep the bond investors’ money to pay claims if a predefined disaster risk takes place during the period for which the bond is issued.
“In early 2025, TD Insurance issued the first 144A property Cat bond focused exclusively on Canadian exposures,” Tuite said. “TD Insurance came back to the Cat bond market in early 2026 to sponsor another Canada-focused Cat bond. These issuances are examples of a broader trend of new sponsors bringing further diversification to the Cat bond market.”
The report notes Cat bond market activity in 2025 “was marked by many high-profile transactions that underscored the market’s continued evolution.”
In early February, TD Insurance successfully sponsored its second catastrophe bond, a year after becoming the first Canadian insurer to sponsor a bond solely focused on Cat perils in Canada.
The MMIFS Re Ltd. Series 2026-1 cat bond provides TDI insurance companies additional reinsurance capacity through a multi-year risk transfer of $115 million aggregate protection against named storms, earthquakes, severe convective storms, winter storms and wildfires. The proceeds are invested in Canadian dollar-denominated European Bank for Reconstruction and Development notes.
Related: Insurer secures second Canadian Cat bond
Beyond increased ILS issuance globally, AM Best notes the deals represent an expansion in the type of perils, geographic regions, and sponsors accessing the market. “This serves as an encouraging indicator of the market’s long-term sustainability and growth, demonstrating that diverse insurers can effectively use Cat bonds for risk transfer,” says the ratings agency.
A recent estimate assembled jointly by AM Best and Guy Carpenter projects the ILS market reached US$120 billion at the end of 2025, up from US$107 billion at the end of 2024. Specifically, the 144A property catastrophe bond market reached US$57 billion outstanding when 2025 ended. That’s a year-over-year increase of nearly US$12 billion over 2024. And 144A property catastrophe bonds represent about half the ILS market’s capacity.
Right now, AM Best says, the catastrophe bond market is softening, which has investors looking for other options to generate higher yields. Their report notes reinsurance demand continues to increase due to expanding insured exposures, while the potential for more severe and frequent NatCats is pushed higher by climate change.
