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WHERE'S THE CAT GOING? SOME OBSERVATIONS ON CATASTROPHE BONDS
Author(s) -
Schöchlin Angelika
Publication year - 2002
Publication title -
journal of applied corporate finance
Language(s) - English
Resource type - Journals
eISSN - 1745-6622
pISSN - 1078-1196
DOI - 10.1111/j.1745-6622.2002.tb00453.x
Subject(s) - reinsurance , bond , issuer , underwriting , business , portfolio , capital market , bond market , financial economics , financial system , monetary economics , economics , actuarial science , finance
This article provides an assessment of the current state of the market for catastrophe (or “Cat”) bonds. Given the changes in insurance markets since September 11th, the demand for Cat bonds is likely to increase. For issuers, Cat bonds have the effect of transferring risks to the capital markets that would normally be underwritten by insurance or reinsurance companies. And as a substitute for insurance, Cat bonds have the potential to help issuers address problems such as lack of capacity and real risk transfer, cyclicality, and credit risk that are commonly associated with insurance and reinsurance markets. Investors value Cat bonds in part because of their low correlations with stocks and conventional bonds. Notable trends in the structuring of the products involve higher levels of risk transfer, longer‐term contracts, and linkage to a portfolio of catastrophic risks.