# Catastrophe Bond

*Insurance — Finicade finance glossary*

A catastrophe bond transfers disaster risk to capital markets: investors earn a high coupon and lose principal if a defined event occurs.

A catastrophe bond transfers disaster risk to capital markets: investors earn a high coupon and lose principal if a defined event occurs — a hurricane above a set strength, an earthquake past a threshold. The appeal to investors is genuine diversification, since earthquakes are uncorrelated with equities. The appeal to sponsors is capacity that reinsurers alone cannot supply, and collateral that removes counterparty risk.

**Also known as:** cat bond, insurance-linked security, ILS

**Related terms:** [Reinsurance](https://finicade.com/glossary/reinsurance), [Structured Product](https://finicade.com/glossary/structured-product), [Tail Risk](https://finicade.com/glossary/tail-risk), [Correlation](https://finicade.com/glossary/correlation), [High-Yield Bond](https://finicade.com/glossary/high-yield-bond)

Source: https://finicade.com/glossary/catastrophe-bond