Insurers are turning to catastrophe bonds to pass on historic levels of wildfire risk to the capital markets.
Issuance of cat bonds that include exposure to wildfires has already soared to more than $5 billion so far this year, according to data published on Monday by industry specialist Artemis. That’s approaching the record
amount sold during all of 2025, which was roughly double the level issued the previous year.
Though the market remains dominated by California, insurers and investors interviewed by Bloomberg say Europe will inevitably need to explore ways to transfer
wildfire risks to private investors. That’s as the fastest-warming continent struggles with increasingly frequent and devastating blazes.
Catastrophe bonds are designed to help insurers offload unmanageable risks to the capital markets. Investors can be on the hook if a predefined catastrophe hits, but stand to make money if it doesn’t.
Wildfire risk is now the fastest-growing category of natural-catastrophe peril globally, with insured losses rising roughly 12% a year, according to KatRisk,
a risk modeling firm. At the same time, investors are getting more comfortable with the financial models being built to map out such risks.
“The key enabler is robust risk quantification,” said Tyson Vickery, managing director and glob
al placement leader for Europe at Marsh, the world’s largest insurance broker. “Investors need confidence in the underlying hazard data and catastrophe models.”
In Europe, insurers say it’s still too early to estimate how much damage this season’s fires have caused. The region also has a long way to go before its cat bon
d market catches up with that in the US, says Will Bruce, global head of climate risk consulting for Aon Plc.
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“Whether a specific market develops around European wildfire risk will depend on a range of fa
ctors, including exposure growth, demand for protection, investor appetite and continued advances in modeling and analytics,” he said.
“Wildfire modeling in Europe is advancing,” said Vickery. But “it is still less mature than in markets such as California.”
The rise in issuance of wildfire-linked cat bonds coincides with growth in sales overall. Last year, a 45% surge in new issuance pushed the total outstan
ding market size to an unprecedented $61 billion, with hurricane risk remaining by far the dominant category.
Balz Grollimund, head of catastrophe perils at Swiss Re, says while there’s growing interest in tra
nsferring wildfire risk to capital markets, “the absolute risk for the insurance industry is still small compared to global peak risks that are typically covered by cat bonds.”
At the same time, the prospect of continually rising temperatures means wildfires will likely become a more frequent and destructive category of natural catastro
phe. And though investors taking on exposure to the risk have so far tended to do so via bonds for which wildfires are part of an array of perils, standalone wildfire exposure is becoming more common.
