Worsening climate change risks put new money in insurance at risk
A logistical hurdle exists in that when a catastrophe bond experiences a loss event, the capital in the investment is suspended until the full cost of a disaster is pinned down
As a cub insurance reporter about 20 years ago I remember being shocked by the brutal economic theory of one old underwriting hand. Amid a cyclical trough in reinsurance pricing, after premiums had been driven down to unsustainable levels by cut-throat competition, he quipped that what the market really needed was a big catastrophe to trigger price rises. Ideally something like a passenger jet flying into a New York skyscraper.
The freakish terrorist attack of September 11 2001, when two aircraft were hijacked and flown into the Twin Towers of the World Trade Centre, came only a few years later. And in one perverted way it did the trick. Competition dwindled. The cost of reinsurance — the insurance cover bought by insurance companies — spiked.