As of mid-September, $36.6 billion in catastrophe bonds were outstanding, $11.9 billion of which was issued this year, according to data collected by Artemis. The bonds, issued by insurance companies to mitigate their exposure to natural disasters such as hurricanes or earthquakes, pay a coupon to investors as long as a trigger event does not occur. In the event of a trigger event, defined in each bond's covenants, the issuer is not obligated to pay the coupon and uses those funds to meet its liability claims.
Events in the U.S. are connected to $9.87 billion, or 27%, of the bonds. Of that, $483 million is directly linked to hurricane or named storm damage in Florida. With Category 4 Hurricane Michael quickly approaching the Florida Panhandle, total insurance losses are estimated near $10 billion. Artemis owner and Editor-in-Chief Steve Evans noted that while some estimates put total catastrophe bond exposure in Florida hurricanes at $15 billion, much of that is for Miami, Palm Beach and surrounding counties on the state's Atlantic side and not the areas in the path of Michael.
Across the total catastrophe bond market, the average coupon was 5.55% with an estimated average loss of 2.72%.