Betting Against a Storm
How We Survive
Marketplace
5 • 1.3K Ratings
🗓️ 30 November 2022
⏱️ 30 minutes
🧾️ Download transcript
Summary
We’ve told you the insurance industry in Florida is in crisis. Or as one industry insider put it, it’s holding on by “a piece of chewing gum.”
In this episode, we explore possible solutions. We dive into the business of reinsurance, or insurance for insurers (turns out you can insure almost anything, including insurance policies); and we look at another possible solution that was born from the wreckage of Hurricane Andrew 30 years ago: the catastrophe bond, a financial instrument that allows investors to bet against storms and make money on risk. So long as a big storm doesn’t wipe them out completely.
Transcript
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| 0:00.0 | The year was 1996. |
| 0:03.0 | Bill Clinton was president to end welfare as we know it. |
| 0:07.0 | The economy was cruising. |
| 0:09.0 | The World Wide Web was in its infancy. |
| 0:12.0 | Oh, I got to get on that internet. I'm laid on everything. |
| 0:14.0 | It was a time of innovation. |
| 0:16.0 | Dolly is the name of the first mammal, yes, a sheep ever to be born as the result of cloning. |
| 0:21.0 | A Cold War ended. |
| 0:25.5 | It was a period of globalization, the original tech boom, and it was a time of invention. |
| 0:31.8 | Michael Millett was 31 years old living in New York City. He was a few years |
| 0:36.6 | into his career at Goldman Sachs when he joined a team that was given the challenge of creating a new financial instrument. |
| 0:45.0 | It did feel big and important, |
| 0:47.0 | and at times it felt as though it was going to go on forever. |
| 0:51.0 | His team was racing to be the first to bring this innovation to market. |
| 0:57.0 | In the summer of 96, there were three major deals, all attempted, and they all failed for different reasons. |
| 1:06.4 | Deal after deal was going right up to the 10 yard line and then stalling out. |
| 1:11.6 | The thing they were all racing to launch was called a |
| 1:14.7 | catastrophe bond. In very simple terms a cat bond, as they're called, allows |
| 1:20.2 | investors to make money on risk by taking bets on catastrophes or rather against |
| 1:27.2 | them and it's a way for the capital markets to absorb the shock of catastrophic losses. |
| 1:33.2 | It was all about Hurricane Andrew. |
| 1:35.2 | Remember, Andrew was a category 5 hurricane that tore through Florida in 1992. 65 people died in the storm and its aftermath |
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