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What’s Behind The Cat Bond Craze?

How the deluge of private capital is transforming the reinsurance industry.
by Angelo John Lewis, A.M. Best Company

“I think a lot of the traditional [reinsurance] markets have come to the realization that if you can’t beat them, you should join them.”
—Shinji Ueda, Holborn

When the $1.5-billion Everglades Re catastrophe bond transaction was completed earlier this year, it was the biggest such transaction in the history of the insurance-linked securities market. Three aspects of the bond, which provides reinsurance coverage for Florida’s state-created property insurer, Citizens Property Insurance Corp., provide a window into recent developments in the multibillion-dollar market for catastrophe bonds, the risk-linked securities that transfer a specified set of risks from a sponsor to capital market investors. Cat bonds are a major segment of the ILS market.

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