Great article. I understand why CAT bonds are so popular with insurance companies. The reinsurance market is only so deep, and CAT bonds can help them. When I find it hard to get comfortable with—math aside—the conceptually how ever to model CAT (catastrophic) risk, which is very low probability but very high severity. As an investor, do you take that risk naked, or can you offload some of it? Fascinating stuff.
Thanks for sharing. I didn't know that. Smart move, though, on behalf of the issuers. That generates an additional sales outlet for CAT bond issuers, and for retail investors (assuming the CAT bond ETFs are accurately structured), it should provide some amount of CAT risk diversification. Thinking about it some more, these CAT ETFs should provide great diversification. During the subprime crisis, we all saw that correlation is a living thing. Many uncorrelated assets became, all of a sudden, highly correlated—exactly when you wanted or needed them to stay uncorrelated. These CAT ETFs, though, should remain uncorrelated. The next crisis should prove that one way or another. If proven uncorrelated, they could be a great portfolio addition going forward.
Great article. I understand why CAT bonds are so popular with insurance companies. The reinsurance market is only so deep, and CAT bonds can help them. When I find it hard to get comfortable with—math aside—the conceptually how ever to model CAT (catastrophic) risk, which is very low probability but very high severity. As an investor, do you take that risk naked, or can you offload some of it? Fascinating stuff.
As a retail investor, you now can invest in CAT bond through ETF
Thanks for sharing. I didn't know that. Smart move, though, on behalf of the issuers. That generates an additional sales outlet for CAT bond issuers, and for retail investors (assuming the CAT bond ETFs are accurately structured), it should provide some amount of CAT risk diversification. Thinking about it some more, these CAT ETFs should provide great diversification. During the subprime crisis, we all saw that correlation is a living thing. Many uncorrelated assets became, all of a sudden, highly correlated—exactly when you wanted or needed them to stay uncorrelated. These CAT ETFs, though, should remain uncorrelated. The next crisis should prove that one way or another. If proven uncorrelated, they could be a great portfolio addition going forward.