The most commonly used type of ILS is a catastrophe bond. Catastrophe bonds are issued by an insurer or a special purpose vehicle and coupon payments are received at periodic intervals. At a predefined catastrophic event, the principal of portion or all the bond is siphoned off to recover losses leaving the investors with capital loss. The most commonly used type of ILS is a catastrophe bond. Catastrophe bonds are issued by an insurer or a special purpose vehicle and coupon payments are received at periodic intervals. At a predefined catastrophic event, the principal of portion or all the bond is siphoned off to recover losses leaving the investors with capital loss.