$37 billion in catastrophe bonds in market

At the end of August, the global catastrophe bond market stood at $36.6 billion following a surge of issuance in 2017 and 2018. Through the first two-thirds of 2019, $4.4 billion in cat bonds were issued. While the bonds cover billions of dollars of global property against many kinds of natural disasters — floods, fire, earthquakes, etc. — the uptick generally follows the activity of the Atlantic hurricane season.

In 2005, seven hurricanes — including Katrina — made landfall. The subsequent two years saw issuance nearly triple. Recent years haven't been as dramatic, but they have been active enough to warrant greater interest. Florida holds the highest risk in terms of dollar value at risk. Data from the Insurance Information Institute show that more than $580 billion, just in single-family homes, would be at risk should a Category 5 hurricane hit the Florida coast. Texas and Louisiana round out the top three with $201 billion and $112 billion in risk to homes, respectively.

Yields on the issues, which are typically two to four years in duration, with many having the option for the issuer to extend them, hold a coupon rate of about 6.8% so far in 2019, up from 2018's average 5.9%. The risks associated with the bonds are that should a trigger event occur, the issuer, generally an insurance company looking to transfer some of its risk to investors, will discontinue coupon payments and principal would be forfeited.