Consider the following statements with respect to Catastrophe Bonds 1 These are risk linked securiti...........

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Consider the following statements with respect to Catastrophe Bonds:

1.These are risk-linked securities that transfer a specified set of risks from the insurer to investors.

2.The yield offered on these bonds is very low, but the principal amount is always secured.

Which of the statements given above is/are correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

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Explanation:

1 only

These are risk-linked securities that transfer a specified set of risks from the insurer to investors: This statement is correct. Catastrophe bonds, also known as cat bonds, are a type of risk-linked securities. They transfer specific risks, often related to natural disasters or catastrophic events, from the issuer (typically an insurance or reinsurance company) to the investors.

The yield offered on these bonds is very low, but the principal amount is always secured: This statement is not universally true. The yield on catastrophe bonds can vary, and it is not necessarily always very low. Additionally, while the principal may be secured under certain conditions, the specific terms and conditions of each catastrophe bond can vary.

Therefore, the correct answer is Option 1: 1 only.