Cat-in-a-box trigger
A parametric trigger that pays when an event of a given intensity occurs inside a geographic zone defined in advance, without measuring the actual loss.
The box is the simplest form of parametric trigger: one or more zones are drawn around the protected asset or country, and each is given an intensity threshold, earthquake magnitude, or a cyclone's central pressure or wind speed. If the event crosses the threshold inside the zone, the payout is due, often within weeks, based on a public agency's data. That simplicity solves the delay and proof problem that paralyzes conventional claims handling after a catastrophe. It comes at a price, basis risk: a cyclone that passes just outside the box, or whose pressure stays slightly above the threshold, can devastate the country and trigger nothing. The geometry of the boxes is therefore the heart of the negotiation.
In July 2021, Jamaica placed through the World Bank a 185 million dollar hurricane cat bond, triggered by a storm's central pressure within boxes drawn around the island. In early July 2024, Hurricane Beryl passed south of the coast without reaching the required pressure threshold in the relevant box: the damage was serious, but no payout was triggered.
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