Catastrophe Bond Investors Dodge Severe Losses Following Hurricane Milton

Investors in catastrophe bonds braced for heavy losses ahead of Hurricane Milton’s landfall, but the outcome proved less severe than expected. Initially projected losses of up to 15% were downgraded to single-digit percentages after the storm made landfall as a Category 3 hurricane. Thanks to a more southerly path and wind shear, the Tampa area, which had been at risk, was spared the brunt of the storm. Insurance losses are now estimated between $20 billion and $60 billion, and cat-bond investors are likely to face a maximum loss of 4%.

The catastrophe bond market, which focuses heavily on U.S. storms, particularly in Florida, has seen volatile results in recent years, from soaring returns in 2023 to losses during Hurricane Ian in 2022. Despite the damage caused by Milton and other storms this season, premiums remain high, offering potential returns for investors willing to accept the risk. Some investors, however, may still face uncertainties in payouts, as flood and wind-related damage often overlap.