Barclay’s Capital, a worldwide investment bank based in the UK, has launched a new initiative that is aimed at providing the insurance industry with added protections against natural disasters. The financial institution will begin supplying insurance-linked securities that will embolden the insurance industry against catastrophes. The new service will help placate the concerns of investors who are growing leery of the insurance industry’s constant struggle with disastrous storms and other events. Barclay’s believed that the insurance-linked security products will help the industry cope with any financial turbulence it may experience in the future.
Barclay’s insurance-linked scurrilities will take the form of catastrophe bonds, which can be used as an alternative to reinsurance. The bonds act as a shield against insured losses, cushioning the financial impact of natural disasters. The demand for catastrophe bonds has shrunk by 20% in the past two years, partly due to the growing demand for reinsurance. The reinsurance industry has adapted well to changing risk management and assessment models that have entered the insurance industry, while catastrophe bonds have not.
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Nevertheless, Barclay’s offering of catastrophe bonds may be a sign of change. Whether investors will share the company’s enthusiasm is yet to be seen, but the reinsurance industry is likely to continue commanding the support of many high-profile investors. Barclay’s notes that the bonds have the potential for lucrative returns if, of course, they money invested in the bonds is not absorbed by a natural disaster.