Peril
A specific type of catastrophe risk — e.g. US hurricane, Japan earthquake, European windstorm. Cat bonds are structured around defined perils.
A peril is a specific type of natural or man-made catastrophe risk for which insurance or reinsurance protection is purchased. Cat bonds and ILS instruments are structured around defined perils — the bond only responds to losses from the named peril(s), not from other causes.
Common perils in the ILS market include: US hurricane (wind), US earthquake, Japan earthquake, Japan typhoon, European windstorm, Australian cyclone, California wildfire, severe convective storm (tornado, hail), flood, and cyber. US hurricane is the dominant peril, accounting for over 40% of outstanding cat bond notional.
Peril diversification is a key portfolio construction consideration for ILS investors — combining US wind, Japan earthquake, and European windstorm reduces correlation and smooths returns across loss years.
Example usage
“The multi-peril cat bond covers US hurricane, US earthquake, and European windstorm — a diversified structure offering a blended spread of 5.2%.”
Frequently asked questions
What is Peril?
A specific type of catastrophe risk — e.g. US hurricane, Japan earthquake, European windstorm. Cat bonds are structured around defined perils. A peril is a specific type of natural or man-made catastrophe risk for which insurance or reinsurance protection is purchased. Cat bonds and ILS instruments are structured around defined perils — the bond only responds to losses from the named peril(s), not from other causes.
How is Peril used in practice?
The multi-peril cat bond covers US hurricane, US earthquake, and European windstorm — a diversified structure offering a blended spread of 5.2%.