Palomar Specialty Insurance Co. said Wednesday closed on its first catastrophe bond. The $166 million Torrey Pines Re will provide Palomar with protection against multiple perils over a three-year period.

Catastrophe bonds are a form of reinsurance that offload the risk of a natural disaster to capital markets investors. Proceeds are deposited in a money market account, and, if no peril of sufficient magnitude occurs, investors keep their principal and collect interest. However, in the event of a sufficiently large catastrophe,  the sponsor may keep the principal.

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