Cat bonds appealing to insurers

Catastrophe bonds are becoming more popular in the insurance industry. That's the view of Steven Ader, credit analyst at Standard & Poor's.

Ader contends: “In moderation, cat bonds can be an effective tool for managing portfolio risk. However, our ultimate treatment of cat bonds is driven by how effectively issuers can demonstrate to us that they have correlated the amount of protection a catastrophe bond provides with their own catastrophe exposures."

Catastrophe bonds have been in the market for almost a decade and have become an increasingly attractive alternative to reinsurance as a means of managing insurer risk exposure, especially since the hurricanes of 2005.