In recent months, the bond market has been center stage following a flurry of activity from the tech sector. With AI demand escalating, major tech companies are in a race to build infrastructure to support it. In fact, it’s estimated that $2T in annual revenue is needed to fund AI computing power by 2030. Funding these projects is undoubtedly expensive, and retaining that debt on corporate balance sheets is risky. It could scare equity investors or hurt credit ratings.
You might be asking why this is interesting or relevant to catastrophe bond investors. But since catastrophe bonds are issued through SPVs, we believe it’s important for cat bond investors to understand their underlying assets and structure.
As tech companies have increasingly turned to new bond issuance to fund projects, some headline-grabbing examples from late 2025 included:
In each of these examples, the SPVs are being used to move debt off of corporate balance sheets, and by doing so, according to some market analysts, might be signaling a bubble in technology infrastructure and creating structural risks.
Critics speculate that when companies move their debt off their balance sheet into SPVs, investors might not have a clear understanding of the company’s complete financial picture. There could be the potential for hidden leverage risks, and companies might be able to manipulate earnings by selling assets to the SPVs for fictitious values, booking immediate “profits”. In our opinion, the concern shouldn’t be about the utilization of SPVs to hold debt, but rather the movement of the debt into these vehicles with the potential for less transparency.
When utilized for the purpose of issuing catastrophe bonds, the SPV serves an important risk-management purpose by being a wholly separate entity from the cat bond sponsor/issuer. The structure works in cat bond investors’ favor by protecting them against the potential insolvency of the issuer/agency seeking to attract capital. Additionally, unlike typical SPVs, Cat Bond SPVs are domiciled in jurisdictions like Bermuda, Cayman and Ireland with a strong regulatory environment specifically designed for reinsurance. Understanding this difference is important.
Remember that if no trigger event occurs during the life of a cat bond, investors will receive their collateral back plus a coupon, as compensation for accepting catastrophe risk. Because the SPV that issued the bonds is separate from the issuer, and fully collateralized, even if the insurer were to become insolvent, the SPV’s assets are legally protected.
We believe that cat bonds exemplify a better use of the SPV structure for minimizing risk: fully collateralized, independent, and tied to specific, measurable triggers. For retail investors seeking non-correlated, issuer-insolvency-resistant income, we believe cat bonds remain highly attractive options.
Bain & Company
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Octus
CPA Journal
The Journal of Accountancy
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