The sponsor of a cat bond might wish to extend the deals maturity date in order to asses and calculate all claims, especially if an event has taken place close to the end of the bond’s risk period, this is called the extension period.
The time between the planned maturity date and the new, final maturity date is known as the extension period.
It’s important to note here that events that occur during the extension period will not result in further claims, as claims can only arise from events that take place during the risk period.
Catastrophe bond and ILS investors are typically paid an extension spread during any extension period, as their investment collateral is held to the benefit of the sponsor in case losses rise sufficiently for a claim to be made.
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