Silver linings in dark clouds
"Catastrophe bonds" generate profits for investors who guess right about disaster.
“Catastrophe bonds” generate profits for investors who guess right about disaster.
Financial market players, bored with immobile and dead low interest rates, have resorted to betting on something far more exciting – a meteor strike.
The United Services Automobile Association, an American insurer, recently issued a 130 million dollar bond allowing investors to gamble against the chance of a natural disaster striking the US. But this time around, beyond banal winter storms and wildfires, meteor falls and volcanic eruptions feature in the risk list.
That’s adding a spark to anyone’s pension plan. Catastrophe bonds (for market operators, more simply “cat bonds”), as these instruments are known, have gained popularity as investors scour the globe for investments that will bring a decent return when interest rates are kept artificially low by central banks.
Insurance companies and reinsurers are riding the wave, taking advantage of demand for cat bonds to offload the risk of major, devastating natural events doing their balance sheets what they do to human populations and infrastructure.