Cat bond investors as likely to dispute claims as traditional players, says S&P

Standard & Poor’s has dismissed any notion that catastrophe bonds may be less likely to pay out in the aftermath of event than traditional forms coverage in a new report.

The rating agency works from the premise that some market commentators have previous claimed that because there is no long-term relationship between the buyer of protection and investors, claims are more likely to be disputed.

It notes that while it is true that cat bond investors haven’t established a long track record of paying claims after major events, this is simply because so few bonds have been triggered in the market’s history.

Its report concludes that there is no reason to assume cat bond investors would be any more likely to dispute a claim than a traditional reinsurer.

“We have explored the claims payment history of cat bonds; in our view, the quality of the collateral and the pre-defined loss calculation offers protection buyers comfort that cat bond issuers are willing and able to pay claims. The timeliness of payments is similar to that of payments by traditional reinsurers,” S&P said.

“We consider that this payment history has actually strengthened cat bonds' ability to pay claims. Cat bonds continue to provide a diversified source of protection to offload cat risk to the capital markets, and thus strengthen the industry's ability to withstand losses following the next major event.”