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Cat bonds were developed by insurance companies to offset the potentially large losses associated with natural disasters.

Investors purchase cat bonds, which pay interest as long as no predefined trigger conditions are met. If the trigger condition, such as a damaging hurricane, occurs, investors forfeit their principal, which is used to pay claims arising from the catastrophe.

Investors like them because they offer enticing, uncorrelated returns, and insurers like them as an alternative to reinsurance.

You can learn more about them here: http://www.artemis.bm/library/what-is-a-catastrophe-bond.htm...