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Catastrophe Bond

   Also found in: Wikipedia 0.01 sec.
catastrophe bond
A debt security with a payoff tied to the relative severity of a natural disaster such as a hurricane or earthquake. Bondholders are paid with insurance premiums but may have to accept reduced principal repayment in the event the specified disaster occurs during the life of the bond.

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.


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In a report, The Catastrophe Bond Market at Year-End 2005: Ripple Effects from Record Storms, Guy Carpenter reported a total of $1.
Other areas of expertise include site-specific seismic engineering analysis, catastrophe bonds and property replacement cost valuation.
These warranties are similar to a catastrophe bond with an industry-indexed trigger, except the transaction is between the insurer and the issuer--often a hedge fund--instead of between the insurer and a host of investors who can buy the cat bonds.
 
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