LONDON (Reuters) – Investors who have put their money into specialist financial bonds which cover insurance companies from huge natural disasters are unlikely to be hit with big losses from monster storm Sandy even though it is one of the biggest ever to hit the United States.
So-called catastrophe bonds represent an obscure part of the insurance industry in which insurance and reinsurance companies transfer extreme risks, such as those for earthquakes and hurricanes, to financial market investors who receive a handsome yield in return for agreeing to cover damages they consider unlikely.
You would have thought a storm so big it's being called 'Frankenstorm' would cause cat bonds investors to worry about losing their money, but not so. Cat bonds are designed to cover natural catastrophes that are so big they only happen once every 250 years. Also, they need to hit specific locations at a specific intensity to trigger a payout.
Disaster modelling company Eqecat said Sandy is likely to cause insured losses of $5 billion to $10 billion – big numbers, but not big enough to significantly impact the cat bond sector.
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- All PropertyCasualty360.com news coverage, best practices, and in-depth analysis.
- Educational webcasts, resources from industry leaders, and informative newsletters.
- Other award-winning websites including BenefitsPRO.com and ThinkAdvisor.com.
Already have an account? Sign In
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
