The Fundamentals of Catastrophe Bonds
Cat bonds are event-linked securities based on reinsurance losses tied to catastrophes.
Explore our perspectives on catastrophe bonds (“cat bonds”), a relatively young asset class with unique investment characteristics. We believe cat bonds can be powerful diversifiers in investors’ portfolios as these securities are linked to natural catastrophic events and tend to have very little correlation to traditional asset classes.
A strategy that invests in global catastrophe-bond-insurance-linked securities, primarily found in the Swiss Re Global Cat Bond Total Return Index.
Fixed income investing entails credit and interest rate risks. When interest rates rise, bond prices generally fall, and a fund’s share price can fall. Event-linked securities, otherwise known as Cat Bonds, are fixed income securities for which the return of principal and interest payment is contingent on the non-occurrence of a trigger event that leads to physical or economic loss. If the trigger event occurs prior to maturity, event-linked securities may lose all or a portion of their principal and additional interest. Investments in below-investment-grade (“high yield” or “junk”) bonds are more at risk of default and are subject to liquidity risk. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and geopolitical risks. Emerging and developing market investments may be especially volatile. Diversification does not guarantee profit or protect against loss.