What is Collateral?
Assets posted by investors and held in trust to secure potential payouts. Typically invested in money market instruments or Treasury bills.
Collateral
Assets posted by investors and held in trust to secure potential payouts. Typically invested in money market instruments or Treasury bills.
How it works in practice
When a $150 million cat bond is issued, investors' funds are placed into a collateral trust account and invested in US Treasury money market funds. If no trigger event occurs during the bond's three-year term, the collateral is returned to investors at maturity along with any final coupon. If the trigger is met, the trustee releases collateral to the cedant to cover catastrophe losses.
Related glossary entries
A
B
C
D
E
G
H
I
L
M
N
O
P
R
S
T
V
W
Z
Learn ILS properly with ILS101
Move from definitions into structures, pricing, triggers, reinsurance applications, and specialist risk topics.
Start Learning