Cat Bonds

Historically, cat bonds have been issued by insurers or reinsurers to cover major losses. For example, a cat bond could have a trigger if the insurance company had to pay more than $2 billion in claims dues to a hurricane. However, many companies are finding that insurance companies are unwilling to cover major risks, or are charging a large premium to do so. As a result, corporations are seeking to insure losses directly with capital markets rather than through an insurance company. For example, Amtrak just issued $275 million in cat bonds that cover damage to its Northeast corridor infrastructure due to storm surges, wind damage, or earthquakes. And, last year, Kaiser Permanente issued $300 million in cat bonds to cover earthquake risk.