catastrophe bond

English

Noun

catastrophe bond (plural catastrophe bonds)

  1. (business, insurance) A risk-linked security that transfers risk related to disasters from the issuer, typically an insurance company, to investors. Such bonds and reinsurance are backstops to insurer insolvency from unexpectedly large losses.
    Synonyms: cat bond, CAT bond (clipped compound)
    • 2025 December 1, Leslie Kaufman, “How ‘Super Roofs’ Reward Insurers, Cat Bond Investors and Homeowners. Investors snapped up a catastrophe bond tied to North Carolina homeowners and their insurer for installing super roofs”, in Bloomberg News‎[1]:
      As the Trump administration stalls federal funding for projects intended to make states more resilient to climate change and private insurers decline to cover properties in high-risk zones, North Carolina just proved there’s another way to fund disaster preparedness: a $600 million catastrophe bond that rewards homeowners and their insurer for installing “super roofs.” Along North Carolina’s beaches, wind damage from hurricanes is such a threat that many private insurers have stopped offering coverage. Hundreds of thousands of homeowners have been forced to buy coverage from the North Carolina Insurance Underwriting Association (NCIUA), the state-created insurer of last resort for coastal properties. Like other insurers, NCIUA has to buy its own risk mitigation so it can pay customers if a major event causes more damage than it has saved from collecting and investing premiums. One option is reinsurance and another is a catastrophe bond, which pays out a specific amount if damage reaches a particularly severe level. Cat bonds have become popular with institutional investors like hedge funds and endowments in recent years because they trigger rarely and otherwise deliver high returns. For years, academics and brokers have discussed whether cat bonds could do more than just clean up after disasters—whether they could incentivize mitigation work that would lessen damages in the first place. Earlier this year, NCIUA decided to test it: They offered investors a cat bond with two features linked to reducing wind damage risks to homes in its portfolio.

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