Glossary

Catastrophe bond

A security sold to investors that pays interest, but whose principal goes to the insurer that sponsored it if a defined disaster occurs, serving as reinsurance.

Also called: cat bond, insurance-linked security, ILS, Everglades Re

A catastrophe bond, or cat bond, lets investors rather than reinsurance companies take on disaster risk. The insurer, called the sponsor, pays a premium into a special-purpose vehicle, which issues notes to investors and holds the proceeds in a collateral account. Investors earn interest, funded by the premium and by the collateral's returns. If a defined event happens, some or all of the principal goes to the insurer to pay claims, and investors lose it. If nothing triggers the bond before it matures, usually in about three years, investors get their principal back.

Triggers vary. An indemnity trigger follows the sponsor's own losses, an industry-index trigger follows total market losses, and a parametric trigger follows a measurement such as wind speed or earthquake magnitude. Because the money is held in collateral, the insurer does not carry a reinsurer's credit risk.

Cat bonds are now a regular layer in many reinsurance towers. In 2026, Florida's Citizens Property Insurance Corporation placed $600 million of named-storm protection through its Everglades Re II 2026-1 bond, according to the trade publication Artemis. For homeowners, the bond does not change your policy or your claim, which your insurer still pays. It does change what coverage costs, since investor appetite affects reinsurance prices. See catastrophe bonds and home insurance and reinsurance tower.

Last reviewed October 10, 2026

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Related terms

Reinsurance Insurance that an insurance company buys from other companies, which reimburse part of its claim payments, especially after a large disaster. Reinsurance tower The stack of reinsurance layers an insurer buys one above another, each starting where the layer below ends, to cover progressively larger catastrophe losses. Probable maximum loss A modeled estimate of how big an insurer's loss from a single severe catastrophe could be, stated at a probability such as a 1-in-100-year event. Parametric insurance Insurance that pays a preset amount when a measured trigger, such as earthquake intensity or wind speed near your home, is hit, whatever your actual damage. Florida Hurricane Catastrophe Fund Florida's state-run reinsurance program, set up after Hurricane Andrew, that reimburses residential insurers for part of their hurricane losses.

Related guides

Catastrophe bonds and home insurance How cat bonds let investors, not just reinsurers, back hurricane and wildfire risk, who sponsors them, and what they change for homeowners and their premiums. Federal catastrophe reinsurance proposals Bills in Congress would put a federal backstop behind insurers or state programs after huge disasters. What the INSURE Act and others do, and the arguments. Home insurance industry trends to watch Seven trends shaping homeowners insurance in October 2026: recovering profits, softer reinsurance, shrinking state plans, cat bonds, storm losses and data. Home insurance market outlook Where home insurance pricing stands in October 2026: insurers back in profit, reinsurance costs falling, rate increases slowing, and the risks that remain. Parametric insurance for homeowners: how it works and its limits Parametric policies pay a fixed sum when a measured trigger, like earthquake shaking at your address, is hit, whatever your damage. What exists and its limits. Reinsurance costs and your premium How the price of reinsurance reaches a homeowners rate, what happened to it in 2023 and since, and why falling reinsurance prices do not cut every bill.

Related insurers

The Andover Companies Andover, Massachusetts insurer founded in 1828, sold only through independent agents in eight states; a mutual holding company since January 2026. Auros and Interboro (SageSure carrier partners) Two Demotech-rated SageSure carriers: Auros, a policyholder-owned reciprocal in Louisiana, Mississippi and Texas, and Interboro, a century-old New York insurer. Hippo Publicly traded insurtech founded in 2015 whose carrier, Spinnaker, writes Hippo homeowners policies and fronts programs for other MGAs; rated A- by AM Best. Homeowners of America (Porch) Irving, Texas home insurer founded in 2006, sold through independent agents; since 2025 owned by a policyholder reciprocal that Porch Group manages. Kin Insurance Chicago insurtech founded in 2016 that sells home insurance online and by phone in 14 catastrophe-prone states through reciprocal exchanges it manages. One Alliance North America Insurance Sun Belt home insurer formerly called Universal North America, sold through independent agents in nine states and owned by 5B Alliance since January 2025.