Prospects And Potential Risks Of Cat Bonds

NameProfessorCourseDateCat BondsTo date, the increased demand for Cat bonds is associated with the frequency of natural disasters that occur around the world. This paper provides an examination of catastrophe bonds (Cat bonds) by analyzing the structure of these financial instruments, as well as determining the factors that contribute to the increased interest in Cat bonds from investors. The research question of the paper is, “How Cat bonds ensure the transfer of a particular set of risks associated with catastrophic natural disasters from the issuer to the investor?” After the research, I wish to learn more about securitization of high-risk securities to provide viable suggestions regarding risk-management practices for the actuarial department. The study is divided into 6 main sections: (1) the emergence and development of the market for Cat bonds; (2) the structure of catastrophe bonds; (3) types of Cat bonds; (4) role of triggers; (5) the factors that contribute to increased interest in Cat bonds; (6) potential risks and disadvantages of Cat Bonds.The Emergence and Development of Market for Cat BondsFor the first time, the emission of catastrophe bonds took place in the mid-1990s of the twentieth century as an objective reaction of the US financial community to