Catastrophe-Bond Traders Are ‘Scrambling’ to Understand Florence's Risk
- Shifting storm downgraded, but major damage still expected
- Portfolio managers turn to disaster modelers for insight
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Catastrophe-bond investors are trying to assess the potential fallout from Hurricane Florence and whether they’re in store for painful losses.
If the storm’s path of destruction -- which is aimed at North and South Carolina -- causes enough damage in certain areas, some portfolio managers holding catastrophe bonds could be on the hook. The securities are used by insurance companies to transfer the risk of disasters. Issuers make coupon payments to investors, but if certain trigger events occur -- like hurricanes -- bond holders can lose all their principal.