Solidum to shift cat bond portfolio closer to index for hurricane season, but selectivity key

With the 2026 Atlantic hurricane season now underway, the key meteorological factors influencing tropical cyclones have pointed towards a below-average season in terms of storm numbers, which affects the tactical positioning of an insurance-linked securities (ILS) or catastrophe bond portfolio, a new report from Solidum Partners AG has highlighted.

In a recent report released by the Swiss insurance-linked securities investment manager, the firm highlights how the current forecast shifts the relative attractiveness of various hurricane-related investment opportunities away from their long-term statistical averages; however, the situation does not provide carte blanche for taking uncontrolled risks in the US hurricane sector.

Solidum noted that the 2026 hurricane season presents a different macro setup than the prior two years, with a number of key themes that drive the firm’s outlook and positioning for this year’s season:

Firstly, the ILS investment manager observes that El Niño dominates the outlook, with forecasts at the time from NOAA/CPC calling for a 61% probability of El Niño emerging in May–July 2026, with 88–94% persistence into Q4. NOAA has now declared an El Nino and expects it to strengthen.

Secondly, the Main Development Region (MDR) is notably cooler than in previous years, with ocean heat content (OHC) in the MDR at its second-coolest level in the 2013–2026 climatology. While Sea Surface Temperatures (SSTs) are +0.33°C above normal across the basin.

And lastly, over the previous two seasons, major hurricanes (such as 2024’s Milton and Helene, and 2025’s Melissa) demonstrated that elevated storm activity does not automatically translate into heavy industry losses.

Last year’s Atlantic hurricane season was particularly unique as it marked for the first time in a decade that no hurricane made landfall in the continental United States, despite three category 5 storms forming in the Atlantic basin.

However, even non-landfalling storms managed to cause significant impacts across the United States. Erin’s storm surge and waves caused severe beach erosion and house collapses along the North Carolina Outer Banks, while Tropical Storm Chantal brought flooding to North Carolina, which marked the only US landfall of any storm during 2025.

In providing its outlook for the 2026 season, which began on June 1st, Solidum emphasises El Niño as the dominant factor, noting that it generally leads to fewer hurricanes in the Atlantic but more in the Pacific. The firm points to NOAA’s predictions of a 55% chance of a below-normal season and just a 10% chance of an above-normal year.

“The agency is forecasting a total of 8-14 named storms (winds of 39 mph or higher). Of those, 3-6 are forecast to become hurricanes (winds of 74 mph or higher), including 1-3 major hurricanes (category 3, 4 or 5 with winds of 111 mph or higher),” Solidum said.

Adding: “El Niño is expected to develop and intensify during the hurricane season, while ocean temperatures in the Atlantic are expected to be slightly warmer than normal and trade winds are likely weaker than average.

“El Niño conditions tend to support less tropical storms and hurricanes, while warmer ocean temperatures and low winds support a more active year.”

The firm recently observed in a previous report that the onset of an El Niño pattern does not translate into a straightforward rule of thumb for ILS managers and their clients.

And while a less active hurricane season typically implies downward pressure on nominal spreads, the firm acknowledged that a broader array of market forces, including capital supply-demand dynamics and total reinsurance capacity, will continue to influence market direction.

Ultimately, Solidum notes that while meteorological data indicates a below-normal to normal 2026 season, data cannot predict the exact path or landfall of an individual storm. While lower activity reduces the statistical probability of a US landfall, the firm stresses the importance of distinguishing between frequency and severity.

The ILS manager affirms that while tactical decisions can be made once a hurricane actually forms, the strategic positioning of cat bond portfolios must be established pre-season

“In general, and for Solidum’s Cat Bond Fund, we plan to shift our clearly more conservative positioning from recent years (expected loss around 10-15% below index) closer to the index, so selectively increase the risk exposure, while still be slightly more conservative than the index,” the firm added.

“However, one needs to carefully select the “ideal” types of Cat Bonds, profiting from such an atmospheric framework while keeping overall (peak…) risks under control.”

In scenarios where frequency is projected to be lower, aggregate structures gain increased appeal. To which Solidum alludes that it has exercised considerable selectivity in pursuing such investments during 2024 and 2025 due to anticipated robust hurricane seasons

“As outlined, we expect a softer season in the Atlantic. However, the Pacific has every ingredient for a “perfect storm”. The El Nino leads to record high temperatures in the Pacific, and SST’s as well as OHC is estimated to reach peak levels. We therefore avoid any coverage in Mexico’s Pacific coast,” the firm concludes.