Catastrophe bond profits raise eyebrows

A flooded street running parallel with the River Neckar in Heidelberg, Germany, on June 3.Photographer: Alex Kraus/Bloomberg

LONDON: A strategy that’s delivered specialist investors huge returns is now facing scrutiny, amid concerns that its risk-reward dynamics might be skewed against some issuers.

Catastrophe bonds, which are issued by insurers, reinsurers and governments seeking an extra layer of disaster coverage, have been handing investors double-digit returns. Issuers, meanwhile, have seen their costs soar.