New cat bond spreads fall to 2.4 times modeled loss

New catastrophe bonds are being priced at 2.4 times modeled expected loss so far in 2026, down from 3.71 times in 2024, according to a Woodwell Climate Research Center analysis published Oct. 20 by CAIA.

In the first half of 2026, expected loss rose even as spreads fell, the authors write, leaving the 2026 multiple roughly 35% below its 2024 level.

For an allocator holding cat bonds, directly or through a fund, the thinner multiple shifts due diligence from the coupon to the model. The authors describe the multiple as a cushion, and a smaller one leaves less room for model error. The question is whose model produced the expected loss figure and whether its baseline reflects the climate the bond will actually face.

Many models used in the US are built from backward-looking data, the authors write. Hurricane models in particular are built from storms recorded between 1900 and today, producing a statistical replica of that record rather than a view of what comes next.

The investors buying the risk and the insurers originating it do not use the same climate assumptions. The authors argue that a spread quoted as a multiple of modeled expected loss describes the model as much as the peril, and two bonds carrying similar language can be underwritten to different views of the same storm.

That leaves allocators with questions about the denominator: which model, which version of its event set, and whether expected loss is measured against a backward- or forward-looking baseline. A thinner multiple on one model can still represent a wider cushion than a richer multiple on another. The authors' conclusion is conditional: a thin cushion works only if the models behind it are accurate, making the model rather than the headline spread the thing to underwrite.