Jamaica Tests $150M “Catastrophe Bond” After Record Hurricane Melissa

Hurricane Melissa devastated Jamaica last week as the strongest storm in the island’s recorded history, killing at least 67 people across the Caribbean and causing an estimated $7 billion in damages. The Category 5 hurricane, with winds reaching 185 mph, destroyed 90% of structures in some coastal communities and left most of the country without power or cell service.

However, Jamaica’s decades of careful disaster planning are now paying off. The country will receive a full $150 million payout from a “catastrophe bond” – a unique financial instrument that automatically releases funds when storms reach predetermined intensity levels. These bonds attract investors with high interest rates, but if a major disaster strikes, all the money goes to the affected nation instead. Jamaica has built what experts call a “beautiful stack” of financial protections, including emergency budgets, parametric insurance, and pre-arranged credit lines.

Climate change made storms like Melissa four times more likely and increased wind speeds by 11% compared to a world without global warming, according to recent studies. This raises questions about whether investors will continue backing catastrophe bonds as extreme weather becomes more frequent and intense.

While the $150 million provides crucial immediate relief, experts say the real challenge lies in getting financial markets to invest in prevention – like stronger infrastructure and seawalls – rather than just post-disaster recovery. Some innovative bonds are beginning to fund “hardening” measures during calm periods, potentially reducing future payouts while building resilience. Jamaica’s response could serve as a model for other vulnerable island nations seeking financial security in an increasingly chaotic climate.