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http://www.finra.org/investors/alerts/catastrophe-bonds-and-other-event…
http://www.investopedia.com/terms/d/derivative.asp
Based on what I read so far, most sources say that it can be a derivative but they are too shy to conclusively categorize it. I mean, at the the end of the day, you could perhaps say that it is just a complex type of insurance. And that doesn't really answer my question so if anybody can help, I'll appreciate it.
it is definitely a derivative-- its value is defined by an underlying (in this case, a catastrophe). the fact that it functions as insurance has no bearing on its status as a derivative-- if you think about it options are basically insurance (calls = insurance for a short position, puts = insurance for a long position)
I'd more so consider the risk transfer contract between the sponsor and the SPV as reinsurance or a derivative. Whereas the Cat Bonds issued by the SPV to the public as a high yield floating rate security. In general, there is no contract between the investor and the SPV and there is no security, index, or asset underlying the overall value. I may be over analyzing the structure of it, so I'd be interested to hear someone else's input as well.
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