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Fidomes - Member of European Securitisation Forum
Order a brochure about securitisation in Luxembourg
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CAT BONDS
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A Cat Bond is a bond on which interest and principal
payments depend on the occurrence of one or several natural
disasters.
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In
the wake of the natural catastrophes that have affected the
United States over the past few years, and following the bankruptcy
of insurers, new methods of risk management have been introduced.
A real complement to traditional reassurance
The investor subscribes to bonds with a fixed term but the yield
is fully linked to the occurrence of a natural disaster: geological,
political, economic, monetary, terrorist attack, or any other
kind. The Securitisation Fund negotiates the payment of a securitisation
premium with a commercial company which will cover the company
against the occurrence of this risk.
Should the event occur, the Fund pays the company an amount
that enables it to meet the damages connected to the occurrence.
In that case the fund's investors do not receive any return
on their investment.
If the event does not occur (or occurs in part), the Fund retains
the securitisation premium and the investors are repaid their
capital plus the securitisation premium, depending on the number
of securities issued by the Fund.
The Cat Bond is issued via a Securitisation Fund (SPV), which
is bankruptcy remote. The securitised risk is quite similar
to an insured risk.
The Luxembourg law, unlike that of other countries, allows this
type of instrument to be introduced and Securitisation Funds
to be set up within a flexible and attractive legal, administrative
and fiscal environment.
The Cat Bond market is not limited to professional investors:
companies can also benefit from them.
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