Why Cat Bonds Were Gate Kept (Until Now)

Catastrophe bonds might seem fairly new to the average investor. That’s because they are. But for institutions, they have been an attractive investment vehicle for over three decades. Why? It’s important to look back at how the industry started, and how they got to where it is today.

Cat bonds emerged in 1997 after a slew of natural disasters incurred massive insurance losses, particularly Hurricane Andrew’s $15B devastation across Florida, Louisiana and the Bahamas. However, investing in derivatives-based financial products that hedge against weather-related events called for high investment minimums and sophisticated infrastructure that tracked seasonal risk patterns, monitored attachment points, and understood parametric versus indemnity triggers. This presented a narrow opportunity reserved for institutions and the upper echelon of investors who could afford to buy in.

And they did. Cat bonds offer uncorrelated returns with limited volatility relative to more common investments like stocks and bonds. Unlike traditional corporate bonds, cat bonds only lose principal if a certain event occurs with very specific parameters - such as if a hurricane impacts a particular area of Florida and exceeds a predetermined level of damages. And while the probability of that tightly-defined event is low enough in and of itself, when packaged against other bonds within an ETF, the risk is significantly offset. 

With the cat bond market worth an estimated $56B, it’s easy to see why everyone might want in. So how are cat bonds opening up to the everyday investor? Let’s take a closer look.

Securitization & Fund Structures

In the late 2000s, firms like Swiss Re, Nephila Capital, and others began creating pooled investment vehicles and funds of insurance-linked securities (ILS) that included cat bonds as part of broader portfolios. Though these funds were still mainly for qualified or accredited investors, they laid the foundation for broader investor access.

Starting in 2010, we started to see that access broaden to retail investors. UCITS funds in Europe began offering cat bonds with greater liquidity and lower investment minimums. And in 2012, the now-closed PIMCO ILS Fund launched to U.S. retail investors via mutual fund platforms.

Shortly after, a small number of registered funds began offering cat bonds, and European online investment platforms provided indirect exposure - making them more visible to the mainstream investment community. The first (and, at the time of this publication, only) US-listed ETF providing concentrated exposure to catastrophe bonds was launched in 2025. 

Lower Minimums

As more fund launches made cat bonds more accessible, they also lowered the barrier to entry when it came to investor minimums. Direct ownership of cat bonds had previously required an investment of $1M USD or more, until private funds made the strategies available to accredited investors. Mutual funds lowered minimums to anywhere from $1,000 to $10,000, making them attainable for a wide range of individual investors, and not just institutions. The catastrophe bond ETF currently listed in the US allows investors to own a single share of the fund, all but eliminating barriers to owning a piece of the cat bond market.

Regulatory Changes & Transparency

Starting in 2016, the EU underwent the Solvency II Direction, which was a major regulatory framework for insurance companies. What it did was provide clarity on capital requirements for insurers investing in or issuing cat bonds, and brought more standardization and transparency to their structures. As a result, the improved risk modeling and disclosure boosted investor confidence in the asset class.

Today, cat bonds are within reach for nearly any investor and come with the transparency and protections investors need to make them a trusted part of their portfolios. Cat bonds have undergone quite a journey to get here since emerging in the late 1990s, from gate-kept to the cusp of mainstream.