A catastrophe bond (also known as a cat bond) is a type of bond that is used to transfer a specific type of risk from a company or government to investors. Cat bonds are typically used to protect against natural disasters such as earthquakes, hurricanes, and floods. The bond issuer pays a premium to the investors in exchange for the transfer of risk. If the event occurs, the investors will receive a predetermined payout. If the event does not occur, the investors will receive their principal back.