Paper: GS – III, Subject: Indian Economy, Topic: Banking and Financial Intermediaries, Issue: Catastrophe Bonds.
Context:
Catastrophe bonds (cat bonds) are an innovative financial instrument designed to help manage the risk associated with natural disasters.
Key Takeaways:
Understanding Catastrophe bonds (cat bonds):
- Catastrophe bonds are hybrid financial instruments that combine features of insurance and debt.
- They allow at-risk entities, usually sovereign states, to transfer defined disaster risks to investors.Â
- In the event of a predefined natural disaster, investors lose a part or all of their principal, which is then used for post-disaster relief and reconstruction.Â
- If no disaster occurs during the bond’s tenure, investors receive their principal back along with a relatively high coupon (interest) rate.
- These bonds effectively turn a country’s hazard exposure into a tradable security, opening access to a wider pool of capital beyond traditional insurers and reinsurers.Â
- This reduces counterparty risk and enables faster payouts, essential in times of crisis.
Catastrophe Bonds: Stakeholders, Adoption, and Challenges:
La Excellence IAS Academy, the best IAS coaching in Hyderabad, known for delivering quality content and conceptual clarity for UPSC 2025 preparation.
FOLLOW US ON:
â—‰ YouTube : https://www.youtube.com/@CivilsPrepTeam
â—‰ Facebook: https://www.facebook.com/LaExcellenceIAS
â—‰ Instagram: https://www.instagram.com/laexcellenceiasacademy/
GET IN TOUCH:
Contact us at info@laex.in, https://laex.in/contact-us/
or Call us @ +91 9052 29 2929, +91 9052 99 2929, +91 9154 24 2140
OUR BRANCHES:
Head Office: H No: 1-10-225A, Beside AEVA Fertility Center, Ashok Nagar Extension, VV Giri Nagar, Ashok Nagar, Hyderabad, 500020
Madhapur: Flat no: 301, survey no 58-60, Guttala begumpet Madhapur metro pillar: 1524, Rangareddy Hyderabad, Telangana 500081
Bangalore: Plot No: 99, 2nd floor, 80 Feet Road, Beside Poorvika Mobiles, Chandra Layout, Attiguppe, Near Vijaya Nagara, Bengaluru, 560040
