LONDON (Reuters) – U.S. insurer USAA will not be able to cash in on two of its catastrophe bonds, because losses from superstorm Sandy and other 2011 natural disasters were not high enough to trigger a payout, Standard & Poor's said.
Insurers and reinsurers use “cat bonds” to manage their exposure to natural disasters by transferring some of the risk to capital market investors.
Cat bond investors such as pension funds receive an income in return for agreeing to pay some of the issuers' claims if an earthquake or hurricane strikes and losses from it meet a predetermined amount.
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