Catastrophe Loss Index - CLI

AAA

DEFINITION of 'Catastrophe Loss Index - CLI'

An index used in the insurance industry to quantify the magnitude of insurance claims expected from major disasters. Catastrophe loss indexes are created by third party firms that research natural disasters and work to provide estimates of the amount of losses from each catastrophe. The catastrophe loss index (CLI) is often used by insurance companies to supplement or check their internal efforts to estimate the company's expected claims from each catastrophe.

INVESTOPEDIA EXPLAINS 'Catastrophe Loss Index - CLI'

These indexes help with setting aside reserves for potential claims, as well as determining where or when to send out insurance adjusters to verify insurance claims. CLIs are also used as the underlying basis for a variety of derivative securities and catastrophe bonds. Securitization of catastrophic loss risks allows insurance companies to hedge against large disasters, such as hurricanes, which might otherwise threaten to deplete an insurance company's reserves.

RELATED TERMS
  1. Catastrophe Hazard

    The risk of loss from a particularly destructive event, such ...
  2. Catastrophe Insurance

    Insurance to protect businesses and residences against natural ...
  3. Catastrophe Futures

    Catastrophe futures are futures contracts traded on the Chicago ...
  4. Catastrophe Bond - CAT

    A high-yield debt instrument that is usually insurance linked ...
  5. Catastrophe Call

    A call provision in municipal bonds that allows for the early ...
  6. Controlled Insurance Program (CIP)

    An insurance policy which consolidates coverage for contractors ...
RELATED FAQS
  1. What is the variance/covariance matrix or parametric method in Value at Risk (VaR)?

    The parametric method, also known as the variance-covariance method, is a risk management technique for calculating the value ... Read Full Answer >>
  2. What is backtesting in Value at Risk (VaR)?

    The value at risk is a statistical risk management technique that monitors and quantifies the risk level associated with ... Read Full Answer >>
  3. How does behavioral economics treat risk aversion?

    The findings of behavioral economists regarding risk aversion can best be summarized by the phrase, "losses loom larger than ... Read Full Answer >>
  4. What's the difference between a confidence level and a confidence interval in Value ...

    The value at risk (VaR) uses both the confidence level and confidence interval. A risk manager uses the VaR to monitor and ... Read Full Answer >>
  5. What are some examples of inherent risk?

    In financial and managerial accounting, inherent risk is defined as the possibility of incorrect or misleading information ... Read Full Answer >>
  6. What does Value at Risk (VaR) say about the "tail" of the loss distribution?

    The value at risk (VaR) is a statistical measure that assesses, with a degree of confidence, the financial risk associated ... Read Full Answer >>
Related Articles
  1. Taxes

    Deducting Disaster: Casualty And Theft Losses

    If you've been a victim, your losses may be deductible. Find out how.
  2. Home & Auto

    5 Investment Risks Created By Global Warming

    Climate-change deniers and believers alike would be wise to prepare for the worst.
  3. Insurance

    Event-Linked Bonds: Competing Against A Catastrophe

    These debt instruments can blow new wind into your portfolio, but only if you can handle the risk.
  4. Personal Finance

    The Financial Effects Of A Natural Disaster

    Despite advances in building and infrastructure, we're all subject to Mother Nature's whims - and the damage can have far-reaching effects.
  5. Insurance

    5 Jobs That Cash In On Disasters

    Disasters just happen, but there are many businesses that are able to make the best of them.
  6. Options & Futures

    Introduction To Weather Derivatives

    Learn about a financial instrument that makes temperature a tradable commodity.
  7. Fundamental Analysis

    The Economics Of Natural Disasters

    Even natural disasters that take place thousands of miles away can shake up your portfolio here at home.
  8. Fundamental Analysis

    A Disaster-Protection Plan For Your Portfolio

    If you can't predict the future, you'll need to plan ahead to protect your assets from the impact of major world events.
  9. Economics

    What is Adverse Selection?

    Adverse selection occurs when one party in a transaction has more information than the other, especially in insurance and finance-related activities.
  10. Investing Basics

    Manage Investments And Modern Portfolio Theory

    Modern Portfolio Theory suggests a static allocation which could be detrimental in declining markets, making it necessary for continuous risk assessment. Downside risk protection may not be the ...

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center