Hurricane Brings Focus on CAT Bonds

Bond investors (not just insurers) may be on the hook for damage from Hurricane Michael. The reason for this is so-called catastrophe (or CAT) bonds. Under this arrangement, insurance companies sell bonds to investors, with the stipulation that bond payments cease if a prearranged event (such as a hurricane) occurs in a particular location and above a particular intensity. This obviously helps insurers during times of significant payouts, but why would an investor take such risk? The answer is a higher interest rate. See article here, WSJ.