List and Define Five Types of Insurance-Linked Securities (ISLs)

Question

Examlex · Accepted Answer

The Answer is Insurance-linked securities include catastrophe bonds, catastrophe equity puts (Cat-E-Puts), contingent surplus notes, collateralized debt obligations (CDOs), and weather derivatives.
Catastrophe bonds or CAT bonds, seek to protect the insurance industry from catastrophic events. The bonds pay interest and return principal to investors the way other debt securities do-as long as the issuer does not experience losses above an agreed-upon limit.
With catastrophe equity puts (Cat-E-Puts), the insurer has the option to sell equity (e.g., preferred shares) at predetermined prices, contingent upon the catastrophic event.
Contingent surplus notes are options to borrow money in case of a specific event.
Collateralized debt obligations (CDOs) are securities backed by a pool of diversified assets these are referred to as collateralized bond obligations (CBOs) when the underlying assets are bonds and as collateralized loan obligations (CLOs) when the underlying assets are bank loans.
Weather derivatives are derivative contracts that pay based on weather-related events.

List and Define Five Types of Insurance-Linked Securities (ISLs)

Definitions: