Investing in Disasters, Hurricane Edition
Today’s report is a timely one as Hurricane Sandy bears down on our friends on the eastern seaboard (we’re thinking about you, please be safe!). Investing in, and hedging out, natural disaster risks has always been a fascination to me. I did a post on catastrophe (“cat”) bonds back in 2007 on my blog, and an easy primer on the space is the always great Michael Lewis’s “In Nature’s Casino“.
Recent headlines:
Artemis (best resource)
Sandy threatens billion dollar losses, could threaten catastrophe bonds
BusinessWeek
Cat Bond Returns Accelerate as ‘Frankenstorm’ Bears Down
Cat Bonds Drop Most Since February as Storm Barrels Toward Coast
There are not a lot of choices for investing in the cat bond space, at least through public funds. GAM FCM has a cat bond fund, and PIMCO and Pioneer both have funds that invest in cat bonds but are not the main focus for the fund. Both Artemis and Swiss Re track cat bond indexes.
For those unfamiliar with cat bonds, below is a list of resources and really good reads on the space.
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AQR
Do Financial Markets Reward Buying and Selling Insurance and Lottery Tickets?
GAM
2012: A compelling outlook for catastrophe bonds
GAM Star Cat Bond – Fund Information Sheet
Hedge Fund Journal interview with Dr John Seo
AIR Worldwide
CATWeek
Top 10 Historical Hurricanes and Earthquakes in the U.S.: What Would They Cost Today?
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And for a little perspective, here is a chart from that AIR Report:
