Cat Bonds Won’t Help Japan

Most have strict limits on what they cover.

April 27, 2011

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hurricane trailerAn article in Business Week talks about the trouble with hedging against Armageddon, pointing out that catastrophe bonds won’t much be much help for Japan as it struggles to rebuild – strict covenants limit the type and location of disasters cat bonds can cover. There are currently $1.7 billion worth of cat bonds focused on Japan, a small sliver of the $12.5 billion market. Most of these are focused on urban Tokyo – not the rest of the country. Apparently only bond will have to pay out – a $300 million issue from Munich Re. It’s an interesting dilemma for the cat bond market which has continued to grow since the first one was issued in the early 90s (in the wake of Hurricane Andrew). Read the full article.

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