The 2025 Hurricane Season and its Potential Impact on Catastrophe Bond Investors

The Atlantic hurricane season, which spans from June to November, represents one of the most concentrated periods of systemic risk within the U.S. catastrophe bond (cat bond) market as well as the broader insurance-linked securities (ILS) market. 

Storm systems often originate off the coast of West Africa, traversing the Atlantic Ocean, Caribbean Sea, and Gulf of Mexico, before impacting densely populated and economically exposed regions of the United States. Historically, Florida, Louisiana, Texas, and the Carolinas are among the most frequently affected, though storm tracks have increasingly reached inland and northeastern states due to climate-driven changes in jet stream behavior and sea surface temperatures. This climatological shift increases the probability of high-loss, low-frequency events with disproportionate financial consequences, especially for bonds covering multi-state hurricane risk on an indemnity or parametric basis. 

The cat bond market has experienced a historical cumulative loss ratio of 2.69%.(1) Our research has shown that most U.S. hurricane seasons result in no full cat bond triggers. Key large events account for the bulk of all historical losses: specifically, Hurricane Ian (2022), Hurricane Irma (2017), and Hurricane Michael (2018).

Through the end of last year (2024), hurricane-triggered bonds represent $2.5-3.0 billion in historical losses spread over nearly three decades of issuance activity. Compared to the tens of billions in notional issued, these numbers illustrate favorable long-term loss ratios that continue to appeal to capital markets.

For U.S.-based investors, the potential for hurricane-driven losses is understandably personal. For ILS investors, it’s also important to understand the regional dynamics of hurricane exposure and the potential impact these storms might have on spread volatility, trigger risk, and event correlation(2) across the portfolio.

Portfolio Positioning Insights

Our portfolio management team continues to closely monitor the portfolio and analyze returns across our catastrophe-linked strategies. 

Below is an overview of some top holdings in ILS, the Brookmont Catastrophic Bond ETF (as of 8/25/2025) with some commentary on each issue. Our hope is that our investors will gain some perspective on how we approach cat bond selection for this ETF and how we aim to analyze holdings and maintain a portfolio that is diversified among issuers, regions, hazard exposure, and other factors.

(3)

1. “Loss ratio” refers to the amount of principal lost by investors since index tracking began in 1997. (Marin Post, 2024) 
2. Event correlation, as it relates to cat bonds, refers to the relationship between different catastrophic events or between a catastrophic event and broader financial markets. We believe one of the primary benefits of investing in cat bonds is their low correlation with the returns of traditional financial assets, such as stocks and conventional bonds.
3. Holdings subject to change. Current and future holdings are subject to risk. Click here [https://ilsetf.com/ils] for the fund's current holdings.