The catastrophe bond market hit US$65.9 billion outstanding as of mid-June 2026, with first-half issuance reaching US$16.1 billion. The figures come from a new Morningstar DBRS report that charts the asset class’s transition from specialist niche to institutional mainstream.
Yields have pulled back from the highs of 2022 to 2024. Morningstar DBRS analysts argue that the structural case for cat bonds remains intact. Returns sit outside the movement of traditional stock and bond markets, a feature that keeps institutional allocators engaged.
The NOAA outlook for a below-average 2026 Atlantic hurricane season has drawn attention as a potential drag on yields. Morningstar DBRS is direct about the limits of that logic.
“Seasonal predictions like the NOAA’s hurricane forecast act as a short-term sentiment and pricing catalyst in the CAT bond market, typically affecting yields in the near term, particularly for bonds exposed to hurricanes,” analysts said.
“However, their impact is temporary and secondary to the deeper forces of long-term risk modeling, capital supply, and market demand, which ultimately drive the asset class.”
That argument finds support in the actual risk data behind the forecast. MS Amlin put the probability of at least one Category 4 or 5 US hurricane landfall at 27% for 2026. The 2025 season produced no US landfalls yet still delivered a Category 5 storm that caused US$8.8 billion in economic damage in Jamaica.
Morningstar DBRS was clear that seasonal outlooks do not shift the structural foundation of cat bond pricing.
“CAT bonds are priced using multidecade catastrophe models rather than one-year forecasts,” analysts noted. “These models incorporate long-term frequency and severity distributions, climate-adjusted risk assumptions, and exposure growth.”
The data behind the yield story is stark. Cat bond prices fell more than 20% year-on-year in early March 2026, with multiples running about 30% below where they sat two years ago. Yet the outstanding market finished Q1 2026 at an all-time high of US$63.9 billion.
Victor Adesanya, senior vice president of global insurance and pension ratings at Morningstar DBRS, said investor demand will keep growing. “We expect investor demand for CAT bonds to continue to grow, especially because they have low correlation with the returns on traditional financial assets,” Adesanya said.
The report also examines the spread of cat bonds into government risk management. Portugal is weighing the instrument as part of a €22.6 billion recovery plan. Morningstar DBRS raised the question of whether Canada’s developing federal insurance backstop could incorporate a sovereign cat bond program for earthquake risk.
That question has recent real-world backing. Jamaica’s $150 million World Bank-issued cat bond paid out in full in November 2025 after Hurricane Melissa met its parametric thresholds. Mexico, meanwhile, doubled its parametric catastrophe arrangement to approximately US$575 million for 2026 to 2027.
For reinsurance professionals watching the asset class grow, a note of caution comes from KBRA. The agency described cat bonds as permanent fixtures in reinsurance programs rather than opportunistic placements. It warned that firms with thinner capital buffers or higher-risk trigger structures may face sharper rating pressure after severe loss events.
