Simone Foxman wrote about the deceptively innocent sounding “cat bonds”:

• Catastrophe bonds – often known as “cat bonds” – are a loan that institutions can take out to slowly be repaid with interest over the years. The twist? If catastrophe strikes then the loans don’t have to be repaid.
• New York’s Transit Authority issued cat bonds where if another Hurricane Sandy like event were to bring down the subway system and create costs exceeding a certain amount then it wouldn’t have to pay back that loan.
• Since the financial crisis cat bonds have been the fifth best performing asset class – meaning that investing in them would have led to relatively substantial gains.
• Halfway through 2013 about $4.17 billion in cat bonds had been issued
• However investors should be wary – major environmental events are more likely to happen as a result of climate change, and the bonds are rated as “well below investment grade”

Read more about the bonds here and here.

Source: Quartz