Hurricane Melissa is set to trigger $150 million in Jamaica disaster bonds to help rebuild

Hurricane Melissa, the strongest Atlantic hurricane of the year, made landfall this week as a Category 5 storm in Jamaica. The strength of the storm means it will likely trigger a full payout from disaster bonds designed to provide funds to the island in the event of catastrophic weather events.

$150 million disaster bond, regulated by Onaims to help island residents rebuild after natural disasters by providing Jamaica’s border coverage against losses resulting from identified storms. The policy took effect this year and runs through 2027.

The Jamaican government is the first in the Caribbean, and the first of any small island nation, to independently sponsor a cat bond, according to ON. Its potential repayment demonstrates the value of a unique type of support financed by private markets.

In order to activate the full boost, the storm must meet certain power criteria. The storm’s central pressure should be at or below 900 millibars as it makes landfall and crosses the island nation.

Early data from the National Hurricane Center shows that Hurricane Melissa’s pressure remained below 900 millibars in several areas. These readings are being verified by an independent accounting agent.

“While the final numbers are still being verified, early signs suggest the deal is doing what it was designed to do: getting vital funds into the country quickly after a major disaster,” said Chris Leverdinck, head of North American insurance-linked securities at Aon.

The review process typically takes two to three weeks, and the earliest possible payment to Jamaica could come in about one month, according to an Aon spokesperson.

Previous parametric transaction payments took 3 months or more, but for this event, Aon used an innovative data source to enable faster payments.

The disaster bonds were placed using the International Bank for Reconstruction and Development’s “Capital at Risk” program, which is used to transfer risks associated with natural disasters to capital markets, allowing the country to access funds quickly after a major event.

“What you have is a capital provider that puts money into the pool, and an insurance company that puts a coupon for that money into the pool [and] “If the storm reaches those standards, they get the money in a much faster way,” Edmund Rees, Aon’s chief financial officer, said in an interview with CNBC’s Contessa Brewer.

Catastrophe bonds and insurance-linked securities were created in the mid-1990s in the wake of the devastation caused by Hurricane Andrew. They have grown in popularity since then, with the cat bond market growing more than 50% since the end of 2022 to nearly $55 billion.

“Public-private partnerships like Jamaica’s continue to highlight how modular insurance can provide rapid and transparent relief in the aftermath of severe storms,” Leverdinck said.

Jamaica narrowly met the requirements to receive damages from a separate cat bond when Hurricane Beryl struck the island in 2024, causing $995 million in damage to homes, crops and infrastructure, according to the National Hurricane Center.