Catastrophe bonds linked to wildfire risk are rapidly gaining acceptance among alternative investment managers, marking a major shift for a peril that was long considered too difficult to model and price.
More than $5 billion in catastrophe bonds with wildfire exposure were issued in 2025, more than double the level seen in 2024, according to Artemis. In earlier years, wildfire-linked bonds appeared only sporadically, often in relatively small transactions.
Wildfire Bonds Fuel Record Cat Bond Issuance
Although wildfire bonds still represent a small portion of the overall market, they helped push total catastrophe bond issuance to a record $23 billion rebound in 2025. Artemis estimates the global cat bond market is on track to reach roughly $60 billion by year-end.
According to Acrisure Re, the growing appetite for wildfire risk reflects advances in catastrophe modeling that have encouraged investors to enter what was once considered an “untouchable” category.
Standalone Wildfire Risk Gains Traction
Dirk Schmelzer, senior fund manager at Plenum Investments AG, said the trend may signal a deeper shift in how catastrophe bonds are structured.
Historically, wildfire exposure was bundled with earthquake or hurricane risk. As wildfire losses intensify, Schmelzer said insurers and investors increasingly see value in isolating the peril and placing it on a standalone basis.
California Fires Drive Capital Market Solutions
Investor interest has been heavily influenced by developments in California, where repeated severe wildfire seasons have made traditional reinsurance extremely expensive.
Wildfires that swept through Los Angeles in January destroyed more than 16,000 buildings and generated an estimated $40 billion in insured losses. Those losses were a major contributor to global insured catastrophe losses exceeding $100 billion in 2025, the sixth consecutive year above that threshold.
Despite the scale of destruction, cat bond investors absorbed minimal losses. Fitch Ratings estimated total cat bond losses at less than $250 million.
Landmark Wildfire Cat Bond Issuances
One of the most significant deals this year came from the California FAIR Plan Association, which issued its first standalone wildfire catastrophe bond.
The bond, priced in December, is expected to raise $750 million in wildfire coverage—three times its initial target—making it the largest pure wildfire cat bond ever issued, according to market participants.
Other regions are exploring similar approaches. Colorado lawmakers are considering legislation that would allow the use of catastrophe bonds to manage wildfire exposure. In Europe, both the European Central Bank and regional insurance authorities have endorsed cat bonds as tools for providing rapid post-disaster liquidity.
Modeling Advances Unlock Investor Confidence
Improvements in wildfire risk modeling have been central to the market’s evolution. Firms including Moody’s Corp., Verisk Analytics Inc., and Karen Clark & Co. have refined their models, while artificial intelligence has improved data processing and loss estimation.
Acrisure Re said these advances have translated into better pricing confidence and broader investor participation, driving the surge in wildfire-linked deals in 2024 and 2025.
Higher Risk Premiums Reflect Ongoing Uncertainty
Despite growing interest, wildfire cat bonds still command significantly higher premiums than bonds tied to more established risks such as hurricanes or earthquakes.
In 2025, wildfire cat bonds priced at six to eight times their estimated loss probability, compared with multiples of two to four for US windstorm bonds, according to Acrisure Re.
Dirk Lohmann, vice chairman of insurance-linked securities at Schroders, said wildfire models remain less mature and less empirically calibrated than those for wind or seismic events.
Broader Cat Bond Market Outlook
Looking ahead, market participants expect catastrophe bond spreads to tighten in 2026, reflecting limited investor losses and sustained demand.
The Swiss Re Global Cat Bond Performance Index is up roughly 11% in 2025, outperforming US corporate bonds and Treasuries, though trailing the S&P 500. Cat bonds have also demonstrated resilience during broader market volatility, reinforcing their role as portfolio diversifiers.
Primary issuance in 2026 is expected to be heavy, according to Twelve Securis, as lower spreads reduce issuance costs and reinsurers push more secondary perils into capital markets.
ETFs Signal Growing Retail Interest
The year also marked the launch of the world’s first catastrophe bond exchange-traded fund, the Brookmont Catastrophic Bond ETF. Assets in the fund have climbed to about $30 million, surpassing its break-even level.
Ethan Powell, chief investment officer at Brookmont, said he expects assets to reach $50 million by the end of the first quarter. Meanwhile, King Ridge Capital Advisors plans to launch a European cat bond ETF, citing strong market momentum.
