ILS and alternative capital: growing appetite in the German market

Cat bonds are moving centre-stage in Europe. Howden Capital Markets & Advisory’s Philipp Kusche explains why a $50 billion market now matters, especially in the DACH region.

Key points:
Cat bonds growing in Europe
Investor base has widened
EU agri cat risk: €60bn now, €90bn by 2050

Philipp Kusche, chairman of HCMA Europe and global co-head of ILS, Howden Capital Markets & Advisory, examines the evolution of the cat bond market and its growing relevance for both investors and the agricultural sector, with particular attention to developments in Germany and the wider DACH region.

As climate events become more frequent and severe across Europe, the demand for robust, scalable and innovative financial solutions to manage risk and support recovery has never been greater. In May 2025, the European Investment Bank (EIB), the European Commission and Howden published “Insurance and risk management tools for agriculture in the EU”, a first-of-its-kind report detailing climate change’s impact on European agricultural production.

The study revealed Europe’s agricultural sector faces an estimated €60 billion in annual catastrophe risk, a figure projected to climb to €90 billion by 2050. The study recommends adopting market-based mechanisms such as reinsurance, mutual risk pools but also catastrophe bonds to strengthen the EU’s resilience in the face of mounting climate threats.

The evolution of cat bond market

What began more than two decades ago as a niche financing tool has grown into a well-established market worth more than $50 billion (approximately €43 billion), representing a significant share of the roughly $100 billion (approximately €85 billion) in alternative capital supporting today’s global insurance sector.

Cat bonds are no longer confined to private insurers and reinsurers. Corporations and public bodies, including the World Bank, have become active participants. Their appeal spans multiple stakeholder groups: investors value the uncorrelated returns, while the (re)insurance industry relies on them to reinforce systemic resilience.

The investor base has also diversified and matured. Pension funds, sovereign wealth funds, endowments and family offices now participate with discipline and scale, further broadening the pool of capital available.

Although cat bonds have historically focused on natural disasters such as hurricanes and earthquakes, their scope is broadening. Emerging use cases include terrorism, cyber risks, and, at times, drought – the latter already identified as the single largest driver of agricultural losses across EU regions. ESG-focused investors, sovereign wealth funds and pension funds are increasingly drawn to these opportunities given their lack of correlation with traditional financial equity and fixed-income markets.

Growing role in Europe and Germany

While the global market has expanded, recent years have seen a notable uptick in Europe, with a number of insurers in France, Italy and Germany utilising cat bonds as part of their reinsurance programmes, particularly against perils such as European windstorms.

This momentum is driven both by investor appetite, the objective of further diversifying capital sources for risk transfer and by the growing need for climate resilience.

Navigating the agricultural future

Rising volatility in climate-related losses threatens pushing certain exposures towards uninsurability. In this environment, insurance-linked securities (ILS) can play a transitional role while market pricing can illuminate hotspots of excessive exposure and channel capital into adaptation strategies. When government intervention is unavoidable, ILS can act as a buffer, easing fiscal strain.

The EIB report emphasises the EU’s intention to adopt a structured, pre-arranged risk financing framework, underpinned by instruments such as cat bonds, reinsurance and mutual pools. The urgency is clear – farmers currently shoulder 70–80% of weather-related losses, leaving governments to step in with unbudgeted assistance.

Ultimately, the adoption of rules-based, structured frameworks will be essential for scaling solutions in data-scarce environments. With such systems in place, catastrophe bonds could become a core pillar of Europe’s agricultural risk management strategy, helping the EU to manage the climate risks of the decades ahead.

Philipp Kusche is chairman of HCMA Europe and global co-head of ILS at Howden Capital Markets & Advisory. He can be contacted at: philipp.kusche@howdencma.com.

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