What is an Exhaustion Point?
The loss level at which the cat bond's entire principal is lost. The layer between attachment and exhaustion defines the risk transferred.
Exhaustion Point
The loss level at which the cat bond's entire principal is lost. The layer between attachment and exhaustion defines the risk transferred.
How it works in practice
A cat bond has an attachment point of $1 billion and an exhaustion point of $1.5 billion. If a hurricane causes $1.3 billion in losses, investors lose 60% of their principal (the $300 million above attachment divided by the $500 million layer). At $1.5 billion or above, the full principal is gone. Beyond the exhaustion point, additional losses fall back on the sponsor.
Related glossary entries
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B
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D
E
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I
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M
N
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P
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T
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