Comments on: Cat bonds wouldn’t have helped the Philippines http://blogs.reuters.com/felix-salmon/2013/11/13/cat-bonds-wouldnt-have-helped-the-philippines/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: eisegesis http://blogs.reuters.com/felix-salmon/2013/11/13/cat-bonds-wouldnt-have-helped-the-philippines/comment-page-1/#comment-48620 Fri, 15 Nov 2013 11:43:57 +0000 https://blogs.reuters.com/felix-salmon/?p=22737#comment-48620 QCIC – I think it’s a (fairly strange) reference to modern major general

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By: rogierswierstra http://blogs.reuters.com/felix-salmon/2013/11/13/cat-bonds-wouldnt-have-helped-the-philippines/comment-page-1/#comment-48616 Thu, 14 Nov 2013 09:21:17 +0000 https://blogs.reuters.com/felix-salmon/?p=22737#comment-48616 Cat bonds aren’t like ordinary insurance, they are capital structure tools for re-insurers. They aren’t written to cover human catastrophes, but for very specific risks that are punitively expensive for the insurance industry to hold. Risks like a Florida hurricane or California earthquake that could wipe out the reinsurance industry. Compare them to hybrid bank debt–like equity when the issuer needs it most, like a bond to buyers in good times.

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By: rogierswierstra http://blogs.reuters.com/felix-salmon/2013/11/13/cat-bonds-wouldnt-have-helped-the-philippines/comment-page-1/#comment-48614 Wed, 13 Nov 2013 19:48:31 +0000 https://blogs.reuters.com/felix-salmon/?p=22737#comment-48614 Cat bonds aren’t like ordinary insurance, they are capital structure tools for re-insurers. They aren’t written to cover human catastrophes, but for very specific risks that are punitively expensive for the insurance industry to hold. Risks like a Florida hurricane or California earthquake that could wipe out the reinsurance industry. Compare them to hybrid bank debt–like equity when the issuer needs it, like a bond in good times.

(Hope this isn’t posted multiple times)

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By: rogierswierstra http://blogs.reuters.com/felix-salmon/2013/11/13/cat-bonds-wouldnt-have-helped-the-philippines/comment-page-1/#comment-48613 Wed, 13 Nov 2013 19:44:44 +0000 https://blogs.reuters.com/felix-salmon/?p=22737#comment-48613 Cat bonds aren’t like ordinary insurance, they are capital structure tools for re-insurers. They aren’t written to cover human catastrophes, but for very specific risks that are punitively expensive for the insurance industry to hold. Risks like a Florida hurricane or California earthquake that could wipe out the reinsurance industry. Compare them to hybrid bank debt–like equity when the issuer needs it, like a bond in good times.

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By: rogierswierstra http://blogs.reuters.com/felix-salmon/2013/11/13/cat-bonds-wouldnt-have-helped-the-philippines/comment-page-1/#comment-48612 Wed, 13 Nov 2013 19:43:56 +0000 https://blogs.reuters.com/felix-salmon/?p=22737#comment-48612 Cat bonds aren’t like ordinary insurance, they are capital structure tools for re-insurers. They aren’t written to cover human catastrophes, but for very specific risks that are punitively expensive for the insurance industry to hold. Risks like a Florida hurricane or California earthquake that could wipe out the reinsurance industry. Compare them to hybrid bank debt–like equity when the issuer needs it, like a bond in good times.

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By: QCIC http://blogs.reuters.com/felix-salmon/2013/11/13/cat-bonds-wouldnt-have-helped-the-philippines/comment-page-1/#comment-48611 Wed, 13 Nov 2013 18:34:39 +0000 https://blogs.reuters.com/felix-salmon/?p=22737#comment-48611 “*modern* environmental catastrophe”

What on earth work is “modern” supposed to be doing there? You don’t think people were killed and fields destroyed by typhoons 100 or 1000 years ago? Its sloppy thinking/writing trying to make things seem nearer and more au courant than they are.

As for why cat bonds are getting press? Companies are always trying to drum up press for their new products and journalists are too stupid to call them on it.

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By: KarinaWhalley http://blogs.reuters.com/felix-salmon/2013/11/13/cat-bonds-wouldnt-have-helped-the-philippines/comment-page-1/#comment-48610 Wed, 13 Nov 2013 13:22:21 +0000 https://blogs.reuters.com/felix-salmon/?p=22737#comment-48610 “Cat bonds can do the former, but they can’t do the latter: in jargon, they cover parametric risk rather than indemnity risk.”
In fact a substantial proportion of cat bonds provide cover on an indemnity basis and the figure is on the rise.
I think the issue around creating a Philippines cat bond would be more about the ability to model the various risks eg from typhoon, flood, storm surge given the level of data available. This is typically the issue with cat bonds covering non-US regions.

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By: steveevans http://blogs.reuters.com/felix-salmon/2013/11/13/cat-bonds-wouldnt-have-helped-the-philippines/comment-page-1/#comment-48608 Wed, 13 Nov 2013 09:16:04 +0000 https://blogs.reuters.com/felix-salmon/?p=22737#comment-48608 Actually most catastrophe bonds are not parametric in nature or trigger. In fact the majority issued now are indemnity, so linked directly to the issuers loss experience. The second most widely used trigger structure is one which is linked to the insured losses of the industry.

In fact, just 2 of the 31 cat bonds issued this year are parametric.

In the case of cat bond for developing nations, then yes parametric is likely most appropriate. However, to say that a cat bond payout would not have helped is strange, as how could some extra disaster risk financing not have helped?

Yes, structurally a cat bond for the Philippines would have to overcome many issues to ensure broad coverage. Something that needed work and may have prevented the issuance of one before. But, it most certainly would have been a useful, and much-needed right now, source of extra post-disaster contingent capital in my opinion.

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By: dsquared http://blogs.reuters.com/felix-salmon/2013/11/13/cat-bonds-wouldnt-have-helped-the-philippines/comment-page-1/#comment-48607 Wed, 13 Nov 2013 08:21:42 +0000 https://blogs.reuters.com/felix-salmon/?p=22737#comment-48607 “then what’s with all the press, all of a sudden, about how cat bonds have become a big thing?”

Historically, a surge of interest in catastrophe bonds tends to coincide pretty well with “a biggish player in the market has built up some underwriting exposure it’s not happy with and is looking around for someone to lift it out”.

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