Cat Bonds Becoming a Common Alternative to Reinsurance, S&P Says

The insurance industry is turning more frequently to catastrophe bonds, according to an article titled “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, Standard & Poor’s Web-based credit research and analysis system, at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (212) 438-9823 or sending an e-mail to research_request@standardandpoors.com.