Catastrophe Bonds Or Cat Bonds

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Catastrophe Bonds Or Cat Bonds A catastrophe bond (CAT) is a form of insurance risk-linked securities, high-yield debt instrument that is designed to raise money for companies in the insurance industry in the event of a natural disaster. Since 1997, the catastrophe (CAT) bond market has provided the insurance industry with protections against natural disasters that have grown more frequent and costly. A CAT bond allows the issuer to receive funding from the bond only if specific conditions, such as an earthquake or tornado, hurricane, occur. They were created and first used in the mid-1990s in the aftermath of Hurricane Andrew and the Northridge earthquake. There are three common types of triggers for a CAT bond: indemnity, industry loss, and parametric. Indemnity triggers base CAT bond payouts on the actual insurance losses experienced by the issuer, and function similarly to traditional reinsurance. CAT bonds offer insurers an alternative to traditional reinsurance and allow catastrophe risk to be transferred to a wider set of investors. Unlike traditional reinsurance where it is possible for the reinsurer to fail to pay out following a loss event, CAT bonds are 100% collateralized and structured to eliminate counterparty risk. According to Artemis, catastrophe bond and other insurance linked-securities issuance rose to a new annual record of $20.3 billion in 2021, up from $16.4 billion in 2020. The breakdown of issuance by type of transaction: $12.5 billion for property catastrophe bonds (62 percent of total issuance in 2021); $6.3 billion for mortgage ILS deals (31 percent); and $1.5 billion for other types of ILS including specialty, life, mortality and private deals (7 percent). #benewinsurance #insurtech #inclusiveinsurance #insurance #reinsurance #takaful

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