a) Describe three trigger structures that can be used to activate a payout on a catastrophe bond and in each case identify their benefits to one or both counterparties to a cat bond transaction. (10 marks)

b) A reinsurer sells a 10 million layer of cover for a insured property portfolio mostly located in Germany, Italy and France. Cover is being provided via a traditional XL contract and she charging 15% rate on line. As a hedge she is evaluating the purchase of 10 million for from ILW triggered by European-wide insured losses >20 billion from a winter storm (ILW Premium is 10%). If she undertakes the hedge, what will be her net cash position at time zero? (10 marks)

c) How might negative basis risk arise for the reinsurer in the scenario described in b)?