Catastrophe bonds (cat bonds) work by having an investor pool deposit 100% of collateral and earn ≈risk free rate + premium paid by the insured

Catastrophe bonds (cat bonds) work by having an investor pool deposit 100% of collateral and earn ≈risk free rate + premium paid by the insured

If the covered event occurs, investors lose a proportionate part of their principal, as the insured gets repaid from the collateral