Wednesday, January 16, 2008

Death is a safe haven

In these treacherous times for bond managers, two areas which have been performing well are death and cat bonds. "Death" or "mortality" bonds pay as much as 5% over LIBOR unless a pandemic or other event raises mortality rates in a given population by a specified amount such as 20% or more. In that case the interest and capital revert to the insurer to pay claims. A Swiss fund manager says his death bonds rose 7.6% last year and that the kind of event needed to trigger the bonds would have involved so many deaths that he wasn't sure he'd have survived it himself. "Cat" or "catastrophe" bonds are tied to natural disasters and there has only ever been one default: Hurricane Katrina which struck New Orleans in 2005, triggering $41bn of insurance claims. Cat bonds returned around 16% last year.


Blogger kinglear said...

Nothing so sure as death and taxes - except death seems to be receding a bit ( people living longer) as taxes get bigger and more pervasive.

9:33 am  
Blogger Eurodog said...

Never really liked cats!

11:07 am  
Blogger Ellee Seymour said...

So misery and misfortune pays?

11:52 am  
Blogger Winchester whisperer said...

Hi Ellee - no, the bonds only pay the investors if there's no misery or misfortune

11:57 am  
Blogger Welshcakes Limoncello said...

I'm glad you explained what a "cat" bond is - silly me!

2:25 pm  

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