What is a Special Purpose Vehicle (SPV)?
A bankruptcy-remote legal entity created to issue cat bonds and hold collateral. Typically domiciled in Bermuda or Cayman Islands.
Special Purpose Vehicle (SPV)
A bankruptcy-remote legal entity created to issue cat bonds and hold collateral. Typically domiciled in Bermuda or Cayman Islands.
How it works in practice
To issue a $200 million cat bond, a Bermuda-based SPV is created as a bankruptcy-remote entity. The SPV has no employees and no other liabilities. It issues notes to investors, collects the proceeds, places them in a trust, and enters into a risk transfer agreement with the sponsoring insurer. If the sponsor defaulted on its other obligations, the SPV's assets would be unaffected because it is a separate legal entity.
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