Hurricane Melissa will trigger the $150 million, International Bank for Reconstruction and Development (IBRD) Capital-at-Risk (CAR) Jamaica 2024 parametric catastrophe (cat) bond.
New York: Fitch Ratings expects minimal disruption to the global (re)insurance sector from Hurricane Melissa, which hit Jamaica as a Category 5 storm this week, despite its potential severity and impact on the country’s economy. Insured losses are estimated to be in the single digit billion-dollar range, with economic losses to the island several multiples higher. We expect more clarity once damage assessments and reports are made next week.
Fitch does not expect any rating implications for the global rated insurance portfolio. Reinsurers will likely pay a higher amount of insured losses, but losses are anticipated to be an earnings issue rather than a capital event. Reinsurers reported good 3Q25 financial results due to the relatively quiet hurricane season and lack of U.S. landfalls.
Over the last 20 years, approximately 30% of economic losses that exceeded USD50 million were covered by insurance and / or reinsurance. These figures align with results from other parts of the world and reflect Jamaica’s efforts to mitigate this risk.
Fitch expects commercial property and business interruption losses tied to high-end resorts near Montego Bay to be the largest contributors to insured losses, because the capital of Kingston was spared hurricane winds. Residential property insurance penetration is low. Significant damage to roads and other infrastructure will delay insurance payouts and rebuilds.
Hurricane Melissa will trigger the $150 million, International Bank for Reconstruction and Development (IBRD) Capital-at-Risk (CAR) Jamaica 2024 parametric catastrophe (cat) bond. This bond had an annual coupon of SOFR plus 7.19% and an initial attachment probability of 2.34%. This implies roughly a 1-in-45 year event to trigger a loss. Holders of the note (15 in total) were split 66% to specialized insurance-lined securities (ILS) fund managers and 33% to asset managers.
Fitch does not expect any adverse ILS market reaction to this cat bond payout. Investors are aware of the principal loss risk, and calendar year 2025 will mark the third consecutive year of record issuance exceeding $20 billion.
The cat bond market is serving as a financing vehicle for governments to transfer extreme property catastrophe risk to the capital markets through the IBRD Capital-at-Risk program facilitated by the World Bank.
This is not the first time that a parametric cat bond has been triggered. Mexico issued IBRD / FONDEN 2020 though its natural disaster insurance fund (FONDON) and state sponsored insurer and the Mexican government-owned insurer Agroasemex S.A. There were four tranches totaling $425 million. Hurricane Otis, which made landfall near Acapulco in 2023, triggered a $60 million from Tranche D to FONDON.