(Quartz) Catastrophe bonds—essentially a gamble on the likelihood of natural disasters—have been the fifth best-performing asset class since the financial crisis, according to research conducted by Deutsche Bank (and shown above). If you had invested your money at the fall of Lehman Brothers in September 2008, only silver, gold, and high-yield debt from the US and the European Union would have made you more money.
As we’ve written before, catastrophe bonds—cutely called “cat bonds”—are a relatively new breed of investment. They are issued by companies, public organizations, or insurers that are vulnerable to unpredictable, weather-related disasters. As with any other bond, the issuer usually pays back a cat bond’s value after a certain period, with interest. But with cat bonds, if some kind of natural disaster lands the issuer with unexpected costs—an unusually high number of insurance claims, for instance—then it doesn’t have to pay back the full amount on the bond or all the interest.