‘Catastrophe’ Bond Market Headed for Major Surge in Issuance

-- The market for catastrophe bonds, one of this year’s best-performing debt classes, is about to see a significant increase in sales as the World Bank, a major issuer, prepares to ratchet up its offering.China Repeats Its View That Israel Must Protect Civilians

“I think you’ll see us doing cat bonds beyond hurricanes, pandemics and earthquakes,” to include physical disasters like floods and droughts, Bennett said in an interview. Historically, investors in cat bonds have avoided such payouts most of the time. But of the roughly 30 cat bonds issued by the World Bank in the past decade, about half a dozen have been triggered, requiring investors to cover some or all of the damage against which the issuer sought to protect itself.

Jamaica is due to return to markets in December, when a $185 million hurricane cat bond matures. Colombia and Peru also are looking to tap the market, and there’s talk of a potential regional cat bond spread across Caribbean countries. Investors in cat bonds get access to portfolio diversification because their price movements are uncorrelated to those of stocks or other fixed-income instruments. And they’re useful for filling environmental, social and governance mandates from end investors.

If cat bond issuers want to entice investors to expose themselves to such risks, they’ll “have to increase their premiums,” Ineichen said.

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