From risk to resilience: Why Jamaica’s catastrophe bond was a good move

An aerial view shows widespread flooding in St. Elizabeth, Jamaica, after Hurricane Melissa made landfall. Photo Credit - Maria Alejandra Cardona

When Hurricane Melissa tore through Jamaica on Tuesday, October 28, one question echoed across the island: Where will the recovery funds come from, and how quickly? One part of the answer was in a bold fiscal innovation, the catastrophe bond (or CAT bond), a mechanism that has made us a regional trailblazer in disaster finance.

Now, with a payout of JMD 24 billion (Bn) triggered, financial experts at the GraceKennedy Financial Group (GKFG) are applauding the Government for this move that will give some breathing room as local and international aid comes to close the gap on what is considered the strongest Hurricane to make landfall over the island of Jamaica.

Jordan Tait, Assistant General Manager at GK General Insurance (GKGI), and Reynaldo Thompson, Vice President of Investment Management & Research at GK Capital Management (GKCM), discuss the bond and outline the next steps for resilience and recovery.

Genesis of the bond

“A catastrophe bond is a type of debt instrument that offers investors attractive returns unless a major disaster strikes. Only Mexico and a few Latin American countries had used this tool before Jamaica, making the island the first small state globally to access catastrophe bond financing on its own terms,” explained Thompson.

Jamaica’s bond was structured through the World Bank’s IBRD Capital-at-Risk Notes Program, which channels private investor capital into disaster risk insurance for developing countries. As storms approached, the bond began trading at a discount, reflecting the heightened probability of payout. If a hurricane like Melissa crossed the pre-set thresholds, investors would lose their principal, which would then be redirected to Jamaica for recovery efforts. It’s a risk for investors, but a lifeline for the country. By transferring the financial burden of natural disasters from taxpayers to global capital markets, Jamaica safeguards its fiscal stability while expanding access to sustainable risk financing.

In 2021, under the leadership of Finance Minister Dr Nigel Clarke, Jamaica became the first small island state to independently issue a cat bond through the World Bank. Valued at US$150 million ($24 billion JMD), it provided immediate access to cash and marked a turning point: Jamaica was no longer merely responding to disasters but actively financing resilience and recovery.

As Clarke explained then, the aim was to “secure quick liquidity in the aftermath of a disaster, without increasing debt.” Unlike traditional insurance, which requires claims assessment, a parametric bond pays out automatically once certain measurable criteria are met. In this case, the strength criteria. The central pressure of the storm must be at or below 900 millibars as it makes landfall and crosses Jamaica. That speed matters. It means funds can reach government coffers within days, not months, to support emergency relief, road repairs, and vital public services.

How CAT bonds impact recovery

With the news that the initial losses of the storm are at JMD 1 trillion, the bond presents a strategic approach to debt and wealth management for the island, which is notably doing well in reducing its global debt.

“From an investment standpoint, the bond is evidence of how smart investments tailored with current realities can provide valuable financial backing in the wake of a disaster, as CAT bonds offer global investors something rare: high yield with low correlation to stock markets. Their performance depends on nature, not Wall Street nor the Stock Market. That appeal has made the global catastrophe bond market surge to over US$45 billion in outstanding issuance, with Jamaica recognised internationally for its leadership in emerging economies.”, Thompson recalled.

“Traditional insurance, whether purchased by governments, businesses, or individuals, remains a cornerstone of disaster risk management. Insurance ensures that critical infrastructure and private property can be repaired or replaced. By protecting businesses and livelihoods, insurance helps maintain economic continuity,” noted Tait.

Beyond technical finance, the real genius of Jamaica’s move lies in its long-term vision.

“Every dollar received after a disaster helps cushion families, stabilise businesses, and accelerate economic recovery. What this means for Jamaica is that it preserves jobs, tax revenues, and national creditworthiness. It’s not just a relief tool but it’s a national wealth-building mechanism which allows Hurricane-stricken and natural disaster-prone countries like Jamaica to recover faster i.e., fewer years lost to the cost of rebuilding and borrowing.”, Tait emphasised.

Echoing the sentiments of the two, Steven Whittingham, CEO of GKFG and Chairman of the Jamaica Stock Exchange (JSE), shared why strategic investments are needed at this very critical time in Jamaica’s development.

Whittingham, who championed another parametric bond solution for local farmers called ‘Weather Protect’ by GKGI, shared, “The move has shown how innovative, rules-based financial instruments can protect both lives and livelihoods and even attract investment capital for the Caribbean. As we seek to rebuild from this catastrophic event and prepare for the next storm, which surely will come, Jamaica won’t just be waiting for aid only. It will already have a solid plan, a payout, and a path to recovery.

Like the CAT Bond, GKGI’s Weather Protect solution for farmers is triggered when specific criteria are met. Launched in 2021, it provides coverage for farmers and fishers against losses from heavy rain, hurricane winds, and drought, with over 1,000 farmers registered.