Catastrophe Bond (CAT Bond)
Definition
A financial instrument that transfers earthquake risk from insurers to capital market investors. If a qualifying earthquake occurs, investors lose principal and insurers receive payment.
Example
The World Bank issued $1.36 billion in CAT bonds covering earthquake risk in Mexico, Chile, and others.
Related Terms
Related Guides
Catastrophe Bonds: How Wall Street Handles Earthquake Risk
Catastrophe bonds transfer earthquake risk to capital markets. Learn how cat bonds work and their role in funding disaster recovery.
Economic Recovery After Major Earthquakes
Earthquake economic recovery can take years to decades. Learn about reconstruction costs, economic impacts, and financial recovery strategies.
Frequently Asked Questions
The epicenter is the point on the Earth's surface directly above the hypocenter (focus) where the earthquake rupture begins. It is typically reported as latitude and longitude coordinates. The strongest shaking usually occurs near the epicenter, though local soil conditions and fault geometry can shift the zone of maximum damage.
A seismograph (or seismometer) is an instrument that detects and records ground motion caused by seismic waves. Modern broadband seismometers can detect movements smaller than the width of an atom. Networks of seismographs around the world enable scientists to locate earthquakes and determine their magnitude within minutes.
P-waves (primary waves) are compressional waves that travel fastest through rock, arriving first at seismic stations. S-waves (secondary waves) are shear waves that arrive later but cause more ground shaking. P-waves travel through solids, liquids, and gases; S-waves only travel through solids. The time difference between them helps determine earthquake distance.
The hypocenter (or focus) is the point within the Earth where an earthquake rupture initiates. It is described by latitude, longitude, and depth. The vertical distance between the hypocenter and the surface directly above is the earthquake's depth, which strongly influences how the earthquake is felt at the surface.
Seismology is the scientific study of earthquakes and the propagation of seismic waves through the Earth. It encompasses earthquake detection, location, and characterization; Earth's internal structure; seismic hazard assessment; and earthquake engineering. Seismologists use data from global seismograph networks to study these phenomena.