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Catastrophe Bond |
Also found in: Wikipedia | 0.01 sec. |
Catastrophe Bond A high-yield debt security backed by insurance premiums. Insurance companies issue catastrophe bonds in order to raise funds for hypothetical insurance payouts resulting from one or more stated events such as floods or fires. The bondholder receives coupons from what the insurance company collects in premiums. However, if the insurance company suffers a loss from a payout of one of stated events, the obligation to repay the bond is either relaxed or forgiven. The main advantage to a catastrophe bond, despite the stated risk, is the fact that it offers a high yield without much regard for the performance of the broader economy because people and institutions will almost always set money aside for insurance premiums. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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| Cat bonds typically are issued by special purpose entities created by insurers to spread the risk of losses from low frequency natural catastrophes such as hurricanes and earthquakes. 69 billion of new cat bond transactions in 2006, which shattered the 2005 record of $1. Priced at a notable discount to peak peril cat bonds, these issues allowed cat bond investors to geographically diversify their investment portfolios. |
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