What is CATASTROPHE BOND?

A SECURITIZATION of a CATASTROPHIC HAZARD, such as an earthquake, hurricane, or windstorm. Repayment of PRINCIPAL and/or COUPONS is contingent on the occurrence of a defined lossmaking catastrophe; if a specified loss occurs, the issuer of the BOND (often an INSURER) may delay or cease making payments to investors, effectively transferring the RISK exposure to investors. The determination of whether payments are to be suspended under a catastrophe bond is generally based on one of three types of triggers: the INDEMNITY TRIGGER, INDEX TRIGGER, and PARAMETRIC TRIGGER. Also known as CAT BOND. See also INSURANCELINKED SECURITY, LIFE ACQUISITION COST SECURITIZATION, MORTGAGE DEFAULT SECURITIZATION, RESIDUAL VALUE SECURITIZATION, WEATHER BOND.

More On This Topic



Link to This Definition
Did you find this definition of CATASTROPHE BOND helpful? You can share it by copying the code below and adding it to your blog or web page.
Written and fact checked by The Law Dictionary