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Cat bondage

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Catastrophe bond lovers and other insurance-linked securities enthusiasts should take a look at a report on insurance securitisation published today by the International Association of Insurance Supervisors (IAIS).

There is an interesting section in the report looking at the various cat bonds that have gone pear-shaped since the dawn of the market in the 1990s.

The first bond in which investors suffered losses was Georgetown Re, sold by Goldman in 1996.  The report explores four other deals that have come under stress since then due to losses from natural disasters or other insured risks.

All in all, the track record is pretty good for most of the 300-odd deals sold. Unfortunately, the dogs start to mount up after the financial crisis broke in 2007.

Pain in Spain hits cat bonds

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Defaults by catastrophe bonds, securities used by insurers to shift the risk of severe losses from natural disasters, have been few and far between.

When deals have run into trouble, it has often been due less hurricanes or earthquakes than some flaw in the way they were structured, such as the four bonds that imploded last year because of their links to Lehman Brothers and dodgy asset-backed debt.

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