JAMAICA is set to receive a $24 billion (US$150-million) payout from its catastrophe bond, triggering a first-of-its-kind financial safety net as the country faces billions in damage from Hurricane Melissa.

Disaster modeller Chuck Watson of Enki Research has estimated that Hurricane Melissa caused damage ranging between US$5 billion and US$16 billion. Watson, who previously worked on an Organisation of American States disaster mitigation project for the region and helped develop hurricane damage maps for Jamaica, told Bloomberg the storm represented a worst-case scenario for the island.

“Hurricane Melissa is just about the worst scenario you can imagine,” he said, comparing it to 1988’s Hurricane Gilbert, which caused US$7 billion in losses. “Melissa will probably cause twice that.”

On Monday, as Melissa took aim at Jamaica, Artemis, the international data media service devoted to the catastrophe bonds news and analysis, reported that Jamaica’s disaster risk insurance could provide strong support for the country in the aftermath of Hurricane Melissa.

In a publication Artemis said Jamaica’s parametric catastrophe bond and insurance protection triggers which, should they pay out, will provide a valuable source of financial liquidity and recovery funding at a particularly challenging time for the country.

“Given the intensity of Hurricane Melissa it still appears that Jamaica’s US$150 million…2024 parametric World Bank catastrophe bond could be triggered and a payout come due to the nation to aid in its recovery from this disaster,” the report said.

Investors in the bond, which was already trading at a substantial discount to its nominal value as the storm approached, now face potentially large losses — a fundamental risk of the cat bond market.

“Based on current models, there is a high chance that there will be at least a partial payout,” Florian Steiger, chief executive of Icosa Investments AG, a Swiss investment firm specialising in alternative fixed-income strategies, told Bloomberg. “These funds will be put to good use and can make a huge difference to the people of Jamaica.”

On Sunday Prime Minister Dr Andrew Holness, responding to a question from the Jamaica Observer, confirmed that the bond is in place but expressed hope that it is not triggered.

“It is dependent on the level of damage, and I think it is also triggered by the wind category, so we are hopeful that we don’t have significant winds which would translate to not having significant damage,” said Holness.

The potential payout underscores a calculated trade-off for the Government. Catastrophe bonds allow issuers to pass part of their risk to capital markets. Investors are attracted by the significant returns if a predefined catastrophe does not occur; the market has delivered record returns since 2023, with the Swiss Re Cat Bond Total Return Index showing returns of 10 per cent this year. However, they face the loss of part or all of their principal if a triggering event happens.

A Proven Financial Shield, Now Bolstered

The potential payout is not the Government’s first use of its layered financial strategy, but it would represent the activation of its largest and ultimate layer. As Artemis reported, “The cat bond sits at the top of a tower of layered disaster risk financing and parametric insurance arrangements that Jamaica’s Government has put in place.”

The system was stress-tested last year when Hurricane Beryl caused an estimated $56.7 billion (US$352 million) in damage and losses, according to the Planning Institute of Jamaica. While Beryl prompted a US$16.3 million payout from the Caribbean Catastrophe Risk Insurance Facility (CCRIF), it narrowly missed the parameters required to trigger the catastrophe bond.

“The layers beneath the cat bond, which comprise of Jamaica’s natural disaster fund, contingent lines of credit and a range of private risk transfer and parametric insurance from the CCRIF and others, would be expected to be triggered and payout first,” the Artemis report noted.

This existing strategy was recently bolstered. In her March 2025 budget presentation, Finance Minister Fayval Williams detailed an expanded $130.6 billion (approximately US$811 million) National Natural Disaster Risk Financing Policy. The strategy starts with budget reallocations and moves through contingency funds, reserve funds—including the National Natural Disaster Reserve Fund (NNDRF)—and international credit facilities like a US$40 billion contingent credit claim with the Inter-American Development Bank (IDB), with the catastrophe bond acting as the ultimate backstop for the most severe events.

With Hurricane Melissa’s winds of 185 mph and a central pressure of 892 millibars, the storm is expected to trigger the parametric boxes for a full payout. “With such an intense storm, paying out is precisely what cat bonds are designed for, to funnel capital into an affected company or region to aid in claims payment or recovery,” Artemis stated.

Limited Market Impact, Major National Significance

The bond, a financial instrument pioneered by former Finance Minister Dr Nigel Clarke and backed by the World Bank, was listed on the Hong Kong Insurance-Linked Securities Market in May 2024 as a strategic buffer against precisely this kind of disaster.

While a full $24 billion (US$150-million) payout is significant for Jamaica, analysis indicates it is a tiny portion of the US$55-billion global cat bond market. The impact on the broader market and specific investment funds is expected to be minimal. Analysts at Plenum Investments AG estimated a full payout would have only a 0.23 per cent impact on one of its two cat bond funds, while the other would be untouched.

For Jamaica, however, the payout is a crucial liquidity event. The funds are parametric, meaning they are released based on the storm’s physical characteristics — like wind speed and location — allowing for rapid disbursement without waiting for lengthy damage assessments. This speed is crucial for a swift national response.

The payout will provide immediate funds for Jamaica’s disaster response. The event now serves as a live test case for other disaster-prone nations considering capital markets as a buffer against sovereign climate risk.

A petrol station at the intersection of Waltham Park Road and Molynes Road in St Andrew showing the devastation left in the wake of Hurricane Melissa on Tuesday, October 28, 2025.