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.(1) 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(2). 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(3), 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.
Broadening Access to Catastrophe Bonds
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, access to cat bonds began to broaden for retail investors. UCITS funds in Europe began offering cat bonds with greater liquidity and lower investment minimums.(4) 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 US-listed ETF offering investors access to catastrophe bonds was the Brookmont Catastrophic Bond ETF (ticker ILS), launched April 1, 2025.
ILS seeks to lower the barrier to entry for investors by providing access to cat bonds within an ETF, a 40 Act Fund vehicle appreciated for having daily liquidity, full portfolio transparency and investment minimums as low as the cost of a single share of the fund.
ILS is an actively managed fund advised by Brookmont Capital Management and subadvised by King Ridge Capital. The portfolio managers aim to provide ILS investors sophisticated portfolio management thanks to their extensive history advising ETFs and investing in the growing cat bond marketplace.
We believe that the ILS ETF puts cat bonds within reach of nearly any investor who might benefit from allocating to the asset class in a broader portfolio.
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