, Columnist
Diversification Can Protect the Cat Bond Market
Flows from marginal players could support a surge of new issues.
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The world has been watching with horror as the human and economic costs from hurricanes Harvey and Irma, and the earthquake near Mexico, stack up. And there are more Atlantic storms on the way. Once relief efforts are well under way and victims begin their struggle to return to normal, the insurance industry moves in to assess the financial cost.
For financial professionals, it's also natural to consider the impact of catastrophe bonds. These help insurers offload some of the exposures they underwrite while fulfilling growing regulatory capital needs, and keep a lid on premium increases. When a disaster covered by a cat bond occurs, the bond may be partly or fully canceled, and the principal may never be repaid.