Catastrophe bonds are issued to help insure against a variety of natural disasters, but have historically focused on protecting against hurricane damages in the United States. However, as the climate changes and with it its threats, other perils are becoming top-of-mind for the reinsurance market.
One such peril gaining marketplace attention? Wildfires. Let’s take another look at the California wildfires a year later.
In January 2025, the Palisades and Easton fires devastated southern California, amounting in an estimated $53B in property damage and estimates up to $250B in total economic losses to the region. Aside from the enormity of insured losses, these wildfires were also surprising for another concerning reason: they occurred outside of California’s regular fire season which typically ranges from April through November… a stark reminder that disasters can happen when we least expect it, and for cat bonds in particular, they can activate at any time when structured across a variety of events.
Wildfire risk is increasingly potent. The LA wildfires fell outside of the typical fire season, which is a reminder that insurers and cat bond sponsors need to price and structure for non-typical timing and geography.
Cat bond market exposure was modest, but attention on fires has grown. According to analysts, about 12% of the cat bond market was estimated to have wildfire risk exposure. While losses from the LA fires were not expected to trigger massive tap-outs of cat-bond principal, the event nonetheless stirred pricing movements: some cat bonds saw downward secondary-market price moves due to questions over attachment erosion and future accumulation.
Modelling and trigger-structure matters. Wildfire is considered a “secondary peril”, so it has been traditionally less frequently modelled, and models are generally less standardised than those triggered by hurricanes or earthquakes. The LA event highlighted how triggers, thresholds and geography matter, and how investor discipline must reflect that.
Broader diversification opportunity. Because wildfire risk behaves differently than hurricane risk, given seasonality, causes and geography, it does offer added diversification for investors. Cat bonds with triggers related to wildfires will generally be less correlated with traditional storm/hurricane exposures.
Wildfire coverage has already been gaining traction within and outside of California, and is likely to be a growing segment of the cat bond market for years to come. In fact, cat bonds tied to wildfire activity reached a new record of nearly $4B in 2025. Here’s how the wildfire segment performed in the past year, with indicators of what could come:
As this area of the cat bond arena continues to shift thanks to increased event frequency and intensity, it’s important for investors to understand both the risks and opportunities the change might prevent. Cat bonds triggered by fire-related losses can continue to bring more portfolio diversification possibilities. They also bring the potential for generating premium yields, since wildfire modelling and triggers are less mature, losses (or near-losses) might be more likely than in well-modelled hurricane zones and event timing is less predictable than other natural disasters. Finally, the growth in wildfire-related issuance likely brings increasing liquidity and more investor choices across the entire cat bond marketplace.
The Los Angeles wildfire event served as a kind of “wake-up call” for the cat-bond market: wildfires are no longer fringe, they’re major. For investors, it’s a reminder that it’s important to understand what you own and identify where your portfolio might have wildfire exposure.
Brookmont Capital Management Research
International Risk Management Institute (IRMI)
Artemis
NBC Los Angeles
Fitch Ratings
Western Fire Chiefs Association
Insurance Journal