LMN Insurance Company is concerned about its exposure to hurricane losses for property risks it insured on the Gulf Coast.LMN borrowed money from investors by issuing financial securities.LMN promised to repay the money it borrowed with interest if hurricane losses do not exceed a specified level.If hurricane losses exceed the specified level,LMN will repay less than it borrowed and use the extra money to fund hurricane losses.The securities that LMN issued are
A)call options.
B)futures contracts.
C)weather options.
D)catastrophe bonds.

Question

Quizplus · Accepted Answer

LMN Insurance Company issued catastrophe bonds, which are a type of insurance-linked security that allow companies to transfer the risk of catastrophic events, such as hurricanes, to investors. If hurricane losses exceed a specified level, LMN will repay less than it borrowed and use the extra money to fund hurricane losses. This allows LMN to reduce its exposure to hurricane losses and provides investors with an opportunity to earn higher returns by taking on this risk.

LMN Insurance Company Is Concerned About Its Exposure to Hurricane