Cat bond sponsors test softer terms as spreads hold firm

Soft-market terms are showing up in catastrophe bonds while pricing holds. Insurance Insider reports that cascading structures, third-event tranches and expanded perils have all found their way into deals this year. Managers canvassed by the publication pushed back where they could, hoping to preserve discipline, but excess capital has meant sponsors usually got the limit they wanted. “We are somewhat concerned that discipline is beginning to weaken,” one cat bond manager told Insurance Insider.

Nationwide’s Aquila Re 2026-1 Class A note is one of the deals Insurance Insider identifies. Citing sources, the publication reports that the bond attaches at $1.95 billion for the first and second events, with traditional reinsurance layers inuring to the benefit of the tranche. Those layers can be reinstated once if a first event exhausts them. If two events within the same risk period fully erode the traditional reinsurance, the attachment point drops to $750 million. The note starts at a remote position and moves down the tower; by a third event, its risk level has increased significantly. It is the first cascading structure Nationwide has used, per the publication.

SageSure’s Gateway Re 2026-1 AAA-2 tranche is the other deal Insurance Insider flags. It provides third-event cover on an annual aggregate basis, a new structure for SageSure. The tranche splits into per-occurrence protection and annual aggregate protection on a third-event basis, with the aggregate leg attaching at $200 million.

The pricing side sharpens the tension. Spreads firmed in the first quarter even as these structures spread, according to Insurance Insider’s analysis. The publication benchmarks current pricing against the 2016 and 2023 cycles and points to an unusually large risk-free contribution as support. That contribution is keeping the asset class attractive and capital stickier than in past soft markets, the analysis says. It also identifies forces that could tighten spreads further this year.

Softer terms alongside a firmer price is a split the market usually resolves in one direction. For now, managers are saying the quiet part out loud. The next deal documents are where that gets decided.