How Jamaica took out an insurance policy for itself, and why it’s about to pay off after Hurricane Melissa

$150M US ‘catastrophe bond’ issued last year headed to full payout, will provide Jamaica immediate help.

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Last year, the country issued $150 million US in a catastrophe or “cat” bond — triggered in case of certain parameters related to how strong a hurricane is and where it passes through.

“They are linked to the central pressure of the hurricane when it makes landfall,” said Florian Steiger, CEO of Icosa Investments, a Swiss firm that focuses on catastrophe bonds. A third party needs to verify the trigger, but there’s no question in this case the necessary threshold has been crossed.

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Funds could get to Jamaica in a matter of days. The country also has multiple eggs in its disaster risk basket — including insurance policies to cover extreme rainfall and tropical storms through a regional pool that provides disaster insurance to Caribbean countries. Additionally, it can draw on lines of credit with the World Bank and the Inter-American Development Bank. 

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In total, Jamaica's Finance Ministry says it has about $820 million US available in financing to draw from in the days and weeks right after a disaster. That won’t cover all of the likely billions of dollars in damages needed, but the insurance-related financing will flow to Jamaica much faster and help quickly restore the most essential services like roads, health care and telecommunications.

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