Catbonds: the Market Evaluation of Natural Risks Factors

Catastrophe bonds are securities with payoffs linked to natural tail events. Using a new proprietary database, we investigate the determinants of the pricing of CAT bonds.We find that CAT bonds are low beta securities: they have low exposure to stock-market market risk and (although to a lesser extent) to corporate bonds risk. Their risk-premium is significantly positive and is not explained by exposure to systematic risk. We show that issuer’s reputation matters for pricing: issuance of inexperienced issuers are priced at a discount.