History
The notion of securitizing catastrophe risks became prominent in the aftermath of Hurricane Andrew, notably in work published by Richard Sandor, Kenneth Froot, and a group of professors at the Wharton School who were seeking vehicles to bring more risk-bearing capacity to the catastrophe reinsurance market. The first experimental transactions were completed in the mid-1990s by AIG, Hannover Re, St. Paul Re, and USAA.
The market grew to $1–2 billion of issuance per year for the 1998–2001 period, and over $2 billion per year following 9-11. Issuance doubled again to a run rate of approximately $4 billion on an annual basis in 2006 following Hurricane Katrina, and was accompanied by the development of Reinsurance Sidecars. Issuance continued to increase through 2007, despite the passing of the post-Katrina "hard market," as a number of insurers sought diversification of coverage through the market, including State Farm, Allstate, Liberty Mutual, Chubb, and Travelers, along with long-time issuer USAA. Total issuance exceeded $4 billion in the second quarter of 2007 alone.
It should be possible to adapt these instruments to other contexts. Professor Lawrence A. Cunningham of George Washington University suggests adapting cat bonds to the risks that large auditing firms face in cases asserting massive securities law damages. Other innovative uses of cat bond structures have been proposed as well.
Read more about this topic: Catastrophe Bond
Famous quotes containing the word history:
“In all history no class has been enfranchised without some selfish motive underlying. If to-day we could prove to Republicans or Democrats that every woman would vote for their party, we should be enfranchised.”
—Carrie Chapman Catt (1859–1947)
“All things are moral. That soul, which within us is a sentiment, outside of us is a law. We feel its inspiration; out there in history we can see its fatal strength.”
—Ralph Waldo Emerson (1803–1882)
“Throughout the history of commercial life nobody has ever quite liked the commission man. His function is too vague, his presence always seems one too many, his profit looks too easy, and even when you admit that he has a necessary function, you feel that this function is, as it were, a personification of something that in an ethical society would not need to exist. If people could deal with one another honestly, they would not need agents.”
—Raymond Chandler (1888–1959)