Home > Glossary

Catastrophe Bond


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.

Related Products

Get started IRMI Sidebar ad
Agricon sidebar banner


Social Media

User ID: Subscriber Status:Free