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    Manish Kumar
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    Catastrophe bonds, also known as CAT bonds, are high-yield debt instruments used by insurance companies to raise money in the event of a catastrophe. If a pre-defined catastrophe like a hurricane or earthquake causes the issuer to suffer losses, their obligation to pay interest or repay principal may be deferred or forgiven. CAT bonds offer advantages like yields that are higher than alternatives for the same risk level and no correlation with stocks or other bonds, providing good diversification for investors.

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    Catastrophe bonds, also known as CAT bonds, are high-yield debt instruments used by insurance companies to raise money in the event of a catastrophe. If a pre-defined catastrophe like a hurricane or earthquake causes the issuer to suffer losses, their obligation to pay interest or repay principal may be deferred or forgiven. CAT bonds offer advantages like yields that are higher than alternatives for the same risk level and no correlation with stocks or other bonds, providing good diversification for investors.

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    20 views1 page

    Cat Bonds

    Uploaded by

    Manish Kumar
    Catastrophe bonds, also known as CAT bonds, are high-yield debt instruments used by insurance companies to raise money in the event of a catastrophe. If a pre-defined catastrophe like a hurricane or earthquake causes the issuer to suffer losses, their obligation to pay interest or repay principal may be deferred or forgiven. CAT bonds offer advantages like yields that are higher than alternatives for the same risk level and no correlation with stocks or other bonds, providing good diversification for investors.

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    Definition of 'Catastrophe Bond - CAT'

    A high-yield debt instrument that is usually insurance linked and meant to raise money in case of a catastrophe such as a hurricane or earthquake. It has a special condition that states that if the issuer (insurance or reinsurance company) suffers a loss from a particular pre-defined catastrophe, then the issuer's obligation to pay interest and/or repay the principal is either deferred or completely forgiven.

    'Catastrophe Bond - CAT'


    Advantages of CAT bonds are that they are not closely linked with the stock market or economic conditions and offer significant attractions to investors. For example, for the same level of risk, investors can usually obtain a higher yield with CAT bonds relative to alternative investments. Another benefit is that the insurance risk securitization of CATs shows no correlation with equities or corporate bonds, meaning they'd provide a good diversification of risks.

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