What is an Attachment Point?
The loss threshold at which a cat bond begins to experience principal erosion. Losses below this point are retained by the sponsor.
Attachment Point
The loss threshold at which a cat bond begins to experience principal erosion. Losses below this point are retained by the sponsor.
How it works in practice
A Florida insurer sponsors a cat bond covering hurricane losses. The bond's attachment point is set at $500 million. If a hurricane causes the insurer $400 million in losses, investors keep their full principal. If losses reach $600 million, the bond begins paying out. The $500 million threshold reflects the level of loss the insurer is prepared to retain on its own balance sheet.
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