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Cat bonds are the most suitable ILS Many institutional investors are
instrument for novice investors already successfully including ILS in
because they are 1) rated and 2) their portfolios, either through
freely tradable by qualified investors. outsourcing to dedicated funds or
They are also an effective way to investing directly.
enhance the risk-return profile of an
investment portfolio. This guide explores the main features
and considerations of a cat bond
In the current low interest rate investment, including different
environment, the value of cash is investment routes and key questions
being eroded by inflation and asked by new investors in the space.
Table 1:
Comparison of historical returns Index Historical Volatility
and volatility since 2002 Annual
Returns
Figure 1:
Structure of a cat bond transaction
In order to determine whether a parametric bond has been triggered by a cat event
or not, the parameters of the event (typically wind speed or earthquake ground
motion) are entered into an index formula.
If the index value calculated in this process is above the pre -defined trigger level
threshold, the bond is triggered. If the value is above the exhaustion threshold, the
bond is exhausted.
Figure 3:
Performance of the Swiss Re Cat
Bond Total Return Index compared
to other asset classes.
Contact RMS
To receive more information or to arrange a meeting to discuss how RMS could
support your investments in cat bonds, please contact any of the individuals listed
below: