[meteorite-list] Investors Are Betting Asteroid Won't Destroy America

From: Ron Baalke <baalke_at_meteoritecentral.com>
Date: Mon, 9 Nov 2015 12:24:39 -0800 (PST)
Message-ID: <201511092024.tA9KOdsg021801_at_zagami.jpl.nasa.gov>

http://www.businessinsider.com/artemis-catastrophe-bond-data-2014-6

The Search For Returns Has Taken Investors To The Nether Regions Of The Solar System
Rob Wile
Business Insider
June 12, 2014

The search for yield has taken investors into the nether regions of the
solar system.

Last month, according to Artemis, a group that tracks catastrophe bonds,
insurer USAA took out a policy against the risk it would have to pay out
for tropical cyclones, earthquakes, severe thunderstorms, winter storms,
wildfire, volcanic eruption and meteorite impact.

The reinsurer, Residential Re then turned around and issued a catastrophe
bond worth $130 million to split up their USAA payout risk among investors.

Last year, a meteor impact caused millions of dollars' worth of damage
to a city in Russia.

Here's the listing:

[Graphic]

In a catastrophe bond, investors sponsor a body's insurance policy, betting
the disaster won't occur. First, they pay an up-front amount to subscribe
to the bond issuance. That amount is called collateral, and it gets parked
in a fund managed by the bond issuer to be invested in low-risk securities.
The pool is supposed to make interest payments to the investors as the
bond reaches maturity. If the catastrophe is avoided, the investors see
a nice return.

But if the catastrophe occurs and the policy is triggered, the fund is
abruptly converted into a rainy (or earthquake-y, or tornado-y) day fund,
and the investors can lose everything.

The Wall Street Journal's Ben Edwards said last month USAA's meteor bond
was likely to yield 15%.

Cat bonds have exploded in popularity thanks to their hefty yields. David
Cole, the CFO at Swiss Re, one of the world's largest reinsurers, recently
told Bloomberg they're actually probably too popular.

The fact that no major natural catastrophes have occurred over the last
two or three years doesn't guarantee losses won't occur in the future.
Some people are chasing yield and may accept risks that they are not prepared
for. Some of the new capital that comes into the market may be not as
experienced or able to create a diversified portfolio.

Here's a chart showing the frequency of new catastrophe bond issues. Besides
yields, of course, there has also been a huge recent uptick in natural
disasters.

[Chart]
Business Insider, data from Artemis

The largest catastrophe bond ever was issued last month - a $1.5 billion
note for protection against Florida hurricanes.
Received on Mon 09 Nov 2015 03:24:39 PM PST