A second storm: Cat bonds and the uncertainty of post-trigger pricing

As the market for insurance-linked securities (ILS) continues to grow, many securities are being tied to natural catastrophes. Although these cat bonds usually provide attractive returns and are becoming a common component in many institutional investors’ portfolios, they still involve a substantial element of risk. Better understanding of post-trigger pricing dynamics can help investors determine what their ILS investments are worth and prepare risk-management procedures for triggered cat bonds.