A catastrophe bond (or cat bond) is a type of insurance-linked security (ILS) that allows investors to provide capital to insurers and reinsurers in exchange for high-yield returns. These bonds are designed to raise funds for insurance coverage against catastrophic events, such as natural disasters (hurricanes, earthquakes, floods, etc.). Here’s how catastrophe bonds typically work: 1. **Issuance**: An insurance company or a special purpose vehicle (SPV) issues the bond to investors.
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