Catastrophe bonds becoming a common alternative toreinsurance, S&P says
The insurance industry is turning more frequently to catastrophe bonds, according to an article, “Catastrophe Bonds: Assessing A Risky Business,” which was published by Standard & Poor’s Ratings Services.
“In moderation, cat bonds can be an effective tool for managing portfolio risk,” said Standard & Poor’s credit analyst Steven Ader. “However, our ultimate treatment of cat bonds is driven by how effectively issuers can demonstrate to us that they have correlated the amount of protection a catastrophe bond provides with their own catastrophe exposures.”
Now nearing their first decade of existence, cat bonds are an increasingly attractive alternative to reinsurance as a means of managing insurer risk exposure, especially since the hurricanes of 2005. In the article, Standard & Poor’s outlines the nuts and bolts of catastrophe bonds and their use in insurer and reinsurer portfolios.
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