Enter Climate Central: Better Disaster & Damage Data for Cat Bond Investors

Many investors are new to considering catastrophe bonds as a unique asset class within the fixed income marketplace. Since cat bond losses ultimately hinge on the probability of insurance payouts following a weather-related natural disaster event, any cat bond owners want to better understand the risks involved…including the likelihood of these weather-related events occurring.

The National Oceanic & Atmospheric Administration has long been the champion of data - tracking every storm or peril that resulted in over $1B in damages since 1980 - but the federal government shuttered the organization in May of this year. However, the non-profit sector subsequently stepped in to take over the database and make some significant changes that might be beneficial for cat bond investors.

Advocacy group “Climate Central” will continue and expand on the important work of  tracking weather-related perils, and they aim to do it with improved granularity. This includes recording events that cause as little as $100M in damages and scrutinizing other events (like wildfires) more closely, since these events are becoming increasingly common. 

Catastrophe bonds link payout risk to defined events, so as there is better data available, we expect investors to improve their education about the probability of triggering events, the potential magnitude of claims, and ultimately have a better understanding of the risk/return profile of the bond(s) they own.

Since this Climate Central initiative is helmed by a non-profit and funded privately, there may be less risk of this data becoming selectively available to institutions, or perhaps inaccessible altogether - as we’ve just experienced with the NOAA’s shuttering under political pressure in 2025. The hope is that providing more continuous, real-time information will create better prediction models and determine the likelihood of future cat bond triggering events with greater precision. 

Climate Central’s database has the potential to help investors better understand which regions, hazards, and event types are trending above or below historical averages. Let’s look at some examples: 

• Comparing risk zones. For investors considering the ownership of a cat bond tied to Florida hurricane losses, the Climate Central’s data has the potential to show how hurricane damages have trended by region over the past 5-10 years. In this hypothetical, if the frequency or intensity of mid-range storms (under $1B) is rising, it may signal underpriced risk.
  
  
• Spotting emerging perils. Suppose a new cat bond is related to wildfire risk in California. Investors might check whether insured losses related to wildfires are growing faster than insurer models predict, or whether smaller fires are combining into multi-billion-dollar loss events more often. This would be a potential sign of clustering risk.
  
  
• Evaluating diversification. Investors might use the data to find perils with lower correlations. For example, if inland flood losses in the Midwest are stable while coastal storm losses are climbing, it could provide guidance as to which bonds to add for improved geographic balance.
  
  
• Checking model realism. If a cat bond’s issuer’s losses were based on now-outdated NOAA data, investors might be able to see how much the NOAA data deviates from the Climate Central dataset. This comparison could provide a sense of whether that issuer’s existing models might be overly optimistic (or pessimistic).

Having more publicly-available, up-to-date datasets could help improve cat bond investor education overall. However, it’s also important to note a few caveats: 

• More data isn’t the same as good data. Data is nuanced and can be influenced by a number of factors. It should be approached with scrutiny.
  
  
• Granularity helps, but researchers should still know which model they are relying on when using data sets for determining prices or attempting to value a cat bond. Public datasets can act as a check on assumptions but will not necessarily uncover hidden model risks.
  
  
• Current events may evolve due to ongoing climate change, regulatory shifts, or infrastructure adaptation, any or all of which might outpace historical records and leave data sets less helpful than anticipated.

For cat bond investors, this Climate Center initiative is likely a positive development. It has the potential to provide insight into more timely and detailed information and to assist interested parties with evaluating risk more confidently.

Sources:

Brookmont Capital Management Internal Research

Time

Climate Central

National Oceanic and Atmospheric Association (NOAA)