Risk glossary

 

Weather-linked bonds

The payout of weather-linked bonds, commonly known as nature-linked bonds, is linked to weather conditions. The return on the nature-linked bond is pegged to a suitable meteorological index. A trigger level is defined, which remains active during the exposure period. If this trigger is hit by the index, the issuer of the bond is allowed to default. Suitable indexes might include rainfall or temperature. Insurance companies commonly issue these bonds to hedge against high weather damage claims.

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