catastrophe bond

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Catastrophe bond

Also known as cat bonds, these are used as a way for insurance agents to transfer risks to investors. They are often attractive to investors because the risks (like that of an earthquake) are uncorrelated with the business cycle – and, hence, provide natural diversification.

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.

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.
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This includes building their assets, providing catastrophic bonds, weather index insurance schemes, and crop/livestock insurance for farmers and rural populations," said Adesina.
HNW is the first closed-end fund to use an innovative strategy that gives investors exposure to catastrophic bonds, or "cat" bonds, a new asset class within a diversified portfolio.
This closed-end fund uses an innovative strategy that gives investors exposure to a new asset class - Catastrophic bonds - within a diversified portfolio, and is an important expansion of our closed-end portfolio," said Daniel K.
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