Debt instruments that pay out when a natural disaster befalls a country, intended to spread the concentrated risk of earthquakes, floods or hurricanes between vulnerable places and global investors. Cat bonds are an increasingly popular alternative to the traditional insurance market, particularly as intensifying disasters linked to climate change and a reduction in aid spending by rich countries, including America, have led vulnerable countries to search for deeper pools of capital.
A record $17bn of cat bonds were issued during the first half of 2025, according to Swiss Re, a reinsurer. The Swiss Re cat-bond index returned over 10% in 2025 through October, against 7% on Bloomberg's index of American Treasuries, despite wildfires in Los Angeles that were among the most expensive catastrophes ever, with damage estimates running to $200bn and more.
Cat bonds pay out when a certain threshold is triggered. Jamaica received a $150m payout from a cat bond in October 2025 after Hurricane Melissa, the worst storm to hit the island, met the bond's atmospheric-pressure trigger. A previous Jamaican cat bond failed to trigger after Hurricane Beryl in 2024 despite borderline readings, drawing criticism from Caribbean finance ministers who said the terms should be revised in the name of fairness.
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