A derivative debt investment vehicle issued by insurers and reinsurers designed
to raise investor capital to cover catastrophic loss events. "Cat" bonds are
issued to cover either a specifically identified event (e.g., a Japanese earthquake)
or the possibility of a certain magnitude of loss associated with hurricane
activity in a particular geographic location (e.g., the Texas Gulf coast). Unlike
traditional reinsurance that is highly leveraged (i.e., reinsurance limits sold
represent many multiples of a reinsurer's capital), "cat" bonds carry no such
leverage since their value is equal to the amount of insurance limits for sale.