Hurricane Melissa expected to trigger $150M cat bond

Hurricane Melissa, which hit Jamaica Tuesday as the strongest storm ever to strike the island, likely triggered a multi-year catastrophe bond designed to transfer some of the nation’s hurricane risk, sources say.

In April 2024, the World Bank issued a catastrophe bond that provides the Government of Jamaica with $150 million in financial protection for four hurricane seasons, renewing coverage that expired in 2023.

The World Bank enlisted Aon Securities and Swiss Re Capital Markets as lead managers, and AIR Worldwide as the risk modeler and calculation agent for the bond.

Sources suggest the bond’s parametric trigger may have been satisfied when Melissa hit the island as a Category 5 hurricane with sustained winds of 185 mph.

“Early data from the National Hurricane Center shows Hurricane Melissa’s pressure has stayed below 900 millibars in several areas — a clear sign of just how powerful this storm is,” said Chris Lefferdink, head of insurance-linked securities, North America, for Aon Securities.

Once confirmed, under the terms of the bond, that level of intensity could trigger a 100% payout, he said.

“While the final numbers are still being verified, the early signs suggest the transaction is doing what it was designed to do: getting critical funds to the country quickly after a major disaster,” Mr. Lefferdink said.

Twelve Securis, an insurance-related investment firm specializing in cat bonds and private ILS, issued a note Wednesday also suggesting a payout.

“In the cat bond market, the focus is on the IBRD Jamaica 2024 cat bond. This parametric structure uses the reported central pressure estimates across a pre-defined grid,” as a trigger, the company said.

“Although subsequent data revisions are possible, the combination of landfall intensity and path suggests that a full loss of principal remains the most likely outcome,” it said.