Humanitarian organizations racing to close a widening financing gap are increasingly turning to cat bonds - but Global Parametrics is urging restraint.
The firm, part of CelsiusPro Group, has warned that the parametric instruments underpinning such deals carry risks that disaster-response organizations may not be prepared for.
Its whitepaper arrives as the scale of need continues to expand. The UN Office for the Coordination of Humanitarian Affairs estimated that 300 million people required humanitarian assistance in 2024, underscoring the gap between available resources and demand.
Total cat bond issuance exceeded $20 billion in 2025 - a record high - as insurers and sovereigns increasingly turned to capital markets for risk transfer.
Cat bonds and parametric insurance share a common foundation: objective hazard-linked triggers that determine payouts without manual loss assessment. The key distinction lies in capital sourcing - cat bonds draw on capital markets, while parametric insurance accesses insurance markets.
In a standard cat bond structure, a sponsor issues a bond through a special purpose vehicle, with investors receiving a risk-adjusted return unless a defined event triggers a fund transfer.
Global Parametrics' whitepaper identifies basis risk as a central concern - the risk that a parametric trigger does not perfectly correlate with actual losses on the ground, resulting in a payout that falls short of need, or no payout at all.
The problem is especially acute for humanitarian organizations that cannot absorb funding shortfalls after a disaster.
A documented historical case illustrates the issue. During the 2015–2016 agricultural season in Malawi, the African Risk Capacity had provided parametric coverage, but many farmers had shifted to a shorter-cycle crop more exposed to that year's drought than the model assumed.
A payout was not initially triggered; only after an investigation and model recalibration was one eventually issued.
Humanitarian organizations have begun testing the instrument. The Danish Red Cross previously issued a cat bond through Guernsey-domiciled Dunant Re IC Limited – named after Red Cross founder Henry Dunant – with a parametric trigger linked to volcano plume height across 10 volcanoes, each with more than 700,000 people living within a 100-kilometer radius.
The deal raised $3 million from specialist investors including Plenum Investments and Schroder Investment Management.
Global Parametrics' parent has its own track record in the space. The World Bank in 2020 commissioned CelsiusPro and consultancy Royal HaskoningDHV to develop a catastrophe risk model and parametric index for cyclones in Mozambique, supporting the government in building insurance capacity.
Mark Rueegg (pictured above), CEO of CelsiusPro Group, said any instrument selection should follow a careful review of risk profile and organizational goals. Author Simant Verma added that cat bonds form one part of a broader toolkit, and that organizations should weigh them against a range of alternatives.
"With increasing frequency and severity of climate-linked hazards, cat bonds may play a part in finding a sustainable solution to the problem of humanitarian financing," Verma said.
