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Investors taking more risk with cat bonds

Positive performance and higher coupon rates relative to investment-grade debt has increased demand for catastrophe bonds in recent years. The increased demand and relatively lower supply has pushed coupon rates lower on new issues despite an increase in the average expected loss. More than $10 billion in new debt has been issued so far in 2017, bringing the total amount of outstanding issues to $30 billion.

The ratio of the average coupon offered by cat bonds to their expected loss provides a metric of the risk investors are willing to accept for each unit of return. That ratio is about half of what it was in 2013 and down 20% from 2016.