Catastrophe bonds don’t offer very high yields. Usually between 2 and 5 percent above treasuries, if no catastrophes happen. They have a similar return as high yield bonds, with the advantage that the losses are generally uncorrelated with the returns of other financial assets.

Cat bond investors usually have large portfolios of other bonds, and are mostly insurance companies and pension funds who want to marginally improve their results without increasing volatility.

There are however situations where a cat bond investor can make a lot of money: live catastrophes. For example, if a hurricane is on its way to Florida, cat bonds covering Florida insurers will trade at a deep discount. If the hurricane changes its course and doesn’t make a landfall, their price goes back to par. A skilled (or lucky) investor could double their capital in a few days.