Catastrophe-Linked Bonds
Catastrophe-Linked Bonds :
"unsecured obligations that pay substantially higher interest rates than government or high-grade corporate bonds of equivalent maturity, but whose principal or interest is cancelable upon certain events or "triggers": those based on catastrophe claims paid by the specific insurer (indemnity CAT bonds) and those based on some general indicator of catastrophe losses (index CAT bonds). The cancellation feature is what gives the insurer protection and can make the bond the functional equivalent of capital or reserves. The issuer puts the proceeds of the bond issue "in the bank", as it were, and doesn't have to pay the money back if a catastrophe trips the trigger". (Financial Services Roundtable Nation Unprepared 2007, 50)
No records Found