As defined by the National Association of Insurance Commissioners, catastrophe bonds (commonly abbreviated to cat bonds) are a segment of the insurance-linked securities market. They are used by P&C insurers and reinsurers to transfer major risks on their books (such as for hurricanes, windstorms and earthquakes) to capital market investors, reducing their overall reinsurance costs while freeing up capital to underwrite new insurance business. Payment of interest or principal to the reporting insurance company depends on the occurrence of a catastrophe event of a defined magnitude or one that causes an aggregate insurance loss in excess of a stipulated amount.
|Most cat bonds are issued in Rule 144A offerings, which are available only to large institutional investors and are not subject to the SEC's registration and disclosure requirements, according to the Financial Industry Regulatory Authority, Inc. (also known as FINRA).
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- All PropertyCasualty360.com news coverage, best practices, and in-depth analysis.
- Educational webcasts, resources from industry leaders, and informative newsletters.
- Other award-winning websites including BenefitsPRO.com and ThinkAdvisor.com.
Already have an account? Sign In
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.