Catastrophe bonds — as the name may suggest — aren’t for fledgling investors. Even so, these high-yield, high-risk securities are attracting growing interest as natural catastrophes intensify.
First developed for the US market in the 1990s, cat bonds are issued by governments, insurers, or reinsurers to cover the costs of natural disasters. Investors buy the instrument in the hope that a payout won’t be triggered, meaning they’ll get their money back plus a return. Alternatively, in the case of a bond-triggering natural disaster, the issuer will keep the capital to cover the fallout.
