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.

BREAKING DOWN '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.

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