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DISASTER BONDS

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▪Disaster Bonds means a bond which is linked with natural calamities like earthquakes, tsunami Hurricane, Katrina and other natural disasters. 

▪It is being offered by the insurance company to the investors who would like to invest in a speculative fund.

▪These are issued by companies and institutions to share the risk and expand the capital to link investors return with the size of insurer losses. 

▪The coupon (Interest) rate and the principal of the bonds are decided by the occurrence of disasters. 

▪However, these bonds haven‟t yet been issued by any insurance company in India.

▪These instruments offer high returns if insurance claims are low, but when more claims filed due to disaster, the return of an investor will be low. In other words, the bigger the losses, the smaller the return and the smaller losses or no losses, the bigger the return.

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