Answer: Financial instruments that offer high returns in exchange for bearing the risk of disasters
Notes: Catastrophe bonds (CAT bonds) are facing scrutiny over their risk-reward balance, especially in the Caribbean. These bonds offer high returns to investors who take on the risk of major disasters like hurricanes or earthquakes. Issuers, such as insurers or governments, use these bonds to fund coverage for catastrophic events. Investors earn periodic interest but risk losing the principal if a disaster meets predefined triggers in the bond contract. In Jamaica, CAT bonds have delivered around 15% returns, but issuers are facing high costs. There are concerns about the fairness of bond terms, especially after Hurricane Beryl, leading Caribbean leaders to call for a review.
