Catastrophe Bonds

Recently, Kerala asked the Union government to consider issuing ‘catastrophe bonds’ to provide protection against financial losses linked to natural disasters.

• Catastrophe bonds, or CAT bonds, are insurance-linked debt instruments.
• Insurers typically raise these bonds to transfer the financial risks borne by these entities from natural disasters to the capital market.
• Raising these bonds helps insurers share the risk from major disasters and provides coverage from events such as earthquakes, hurricanes, floods, or other natural disasters.
• These bonds are high-yield debt instruments due to the risks associated, and investors investing in these bonds get the full payment only if no ....