Filter by Categories
Accounting
Banking

Finance




Act of God Bond


A high-yield, asset-based debt security that is issued by an insurance company with principal, interest, or both linked to the company’s losses arising from a natural calamity such as an earthquakes, fires, hurricanes, floods, etc. Such a bond may have treasury bonds as underlying asset or reinsurance premiums as underlying income stream.

Insurance companies issue these bonds, which are usually backed by insurance premiums, in order to raise funds to insure themselves against potential adverse events whereby it might be obligated to make hefty payouts to the insured. The bondholder receives payments out of collected insurance premiums. However, if losses exceeded a specific level, interest payments and/ or principal payback would be either delayed or relaxed. In this sense, these bonds create flexibility for insurance companies if an unforeseen disaster occurs, compromising its ability to pay insurance as stated in insurance policies.

Act of God bonds are also referred to as CAT bonds, or catastrophe bonds.



ABC
Finance, as a field of knowledge, is substantially wide-ranging and virtually encompasses everything in the realm of corporate finance, financial management, ...
Watch on Youtube
Remember to read our privacy policy before submission of your comments or any suggestions. Please keep comments relevant, respectful, and as much concise as possible. By commenting you are required to follow our community guidelines.

Comments


    Leave Your Comment

    Your email address will not be published.*