UBS Wealth Calls Out Payment Triggers for Catastrophe Bonds

The models that determine when catastrophe bonds pay out are falling short, as the financial compensation triggered by extreme weather events rarely covers the damage caused on the ground, according to UBS Group AG’s global wealth management arm.

Catastrophe bonds — also called cat bonds — are typically used by insurers to offload unmanageable risks to the capital markets. Investors can be on the hook if a predefined natural disaster hits, but stand to reap huge profits if it doesn’t. Investors largely dodged payouts after Hurricanes Helene and Milton last year, with the Swiss Re Global Cat Bond Index rising more than 17%, just shy of the 20% record seen in 2023.