Jamaica Can’t Access $150M Cat Bond Insurance After Hurricane Beryl

  • Jamaica can’t tap into catastrophe-bond funds despite Hurricane Beryl’s devastation.
  • That’s because the air pressure level required for a payout wasn’t exceeded. 
  • Bondholders therefore didn’t have to pay out.

Although a category-five hurricane laid waste to Jamaica, the nation won’t be able to access funds from a bond meant to cover natural disasters, Bloomberg reported.

That’s despite the fact that Jamaica was among the first to introduce so-called catastrophe bonds, or assets that offer traders an attractive yield for the risk of losing their money due to a natural disaster. With climate change on the rise, cat bonds have grown into a hotter investment.

But in this case, investors in the country’s $150 million asset won’t have to pay a dime, the outlet said.

Instead, bond holders were spared loss due to the specific terms of the investment vehicle.

To pay, air pressure during the hurricane would need to have reached a defined minimum in any of the country’s sub-areas, Bloomberg reported, citing an advisory sent to investors by Switzerland-based Plenum Investments. Although a powerful storm, pressure did not meet that criteria.

The structure of the cat bonds was such that they paid investors 7% above the US Treasury rate. According to the World Bank, the asset provides catastrophe insurance for four hurricane seasons and has brought in 15 global investors.

While Jamaica has to turn inwards to cover damage costs, the country has $1.6 billion in a disaster safety net, Bloomberg said. Meanwhile, its sovereign bonds remain intact.

Climate disasters are not always strong enough to trigger cat bond payouts, an expert told Business Insider in October.

In fact, despite over 20 disasters hitting the US last year, the Swiss Re Global Cat Bond Total Return Index hit its highest one-year return since in two decades, reaching 19.69%.

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