AM Best: Cat bond issuance hits record $17.3bn as ILS capacity fuels softening

Catastrophe bond issuance reached a record $17.3bn in the first half of 2026 as abundant investor capital continued to build across the insurance-linked securities (ILS) market, according to AM Best.

The rating agency said total ILS capacity remained at an all-time high, while pricing and returns were following the downward trend seen across the wider reinsurance market.

“Record cat bond issuance in the first half of 2026 exemplifies broader reinsurance market dynamics observed at the mid-year renewals,” AM Best said.

“Cat bond deals, like many traditional reinsurance deals, were routinely oversubscribed.”

The same report said capacity providers remained “flush with capital” following three consecutive years of strong ILS and reinsurance returns, while relatively benign cat losses during the first half further expanded the capital base.

AM Best said ILS growth was one contributor to softer mid-year property catastrophe pricing, although traditional reinsurance capital remained more influential.

“While the abundant capacity in the ILS market contributes to the overall softening of the market, the deployment of traditional reinsurance capacity is still more impactful,” it said.

Property cat capacity was estimated to have exceeded demand by more than 25% at the mid-year renewals, with reinsurance broker Guy Carpenter’s Global Property Catastrophe Rate-on-Line Index down 16% year-to-date through 1 July.

Cat bond issuance itself reached $17.3bn during the first half, shown in Exhibit 1, including a record $11.3bn during the second quarter.

“For perspective, the 2Q 2026 issuance was larger than total annual issuance for most of the history of the cat bond market,” AM Best said.

 Final issuance sizes were 19.8% above initial targets,  AM Best reported, compared with average upsizing above 30% between 2023 and 2025.

“Even though the increase is not as large as it was in prior years, sponsors have confidence in tapping the capital markets to transfer risk,” the report said.

Guy Carpenter and AM Best estimated year-end 2025 ILS capacity at $123bn, with further growth projected during 2026.

AM Best said: “Taken together, record cat bond issuance, record ILS capacity, and softer, though still positive, [year-to-date] returns reflect the same abundant-capital dynamic that has driven mid-year pricing lower across the reinsurance market.”