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.

The report is available to subscribers of RatingsDirect at www.ratingsdirect.com. Those who are not RatingsDirect subscribers may purchase a copy of the report by calling (212) 438-9823.