Actuarial science meets extreme climate events meet the financial sector and what do you get?

Lewis (2007) describes how risks from extreme climate events get packaged into catastrophe bonds that spread the risk from the individual customer to the insurance company to the re-insurance company to the global financial sector.
It is said that only global capital markets can absorb the shock of a rare “Big One.” (Q: Has this been rethought since the meltdown of 2007-8?)

Insurance and finance corporations want to make money—pricing the bonds well requires well-informed science.
They also don’t want to crash—buying and selling the bonds involves decisions in light of assets, exposure, and psychology under uncertainty.

How these objective and subjective aspects of managing risk shape (distort?) policy making is an issue for further inquiry, as is whether and how it directs what science gets done.  (The intersection of the financial sector and research has certainly shaped biotechnology; see Fortun 2008.)

* Is the reason for cat bonds really about the Big One or is it mostly a new way to make money from re-insurance, where most events covered are not catastrophic?
* What new vulnerabilities arise given, say, inaccurate rating of bonds, predatory purchases during storms, unequal information, etc.
* Is the use of cat bonds by government authorities associated with a reduced funding (past and ongoing) for infrastructure, prevention, mitigation, relief?
* What is to ensure that risks are covered, that players are not assuming that the government will step in if insurance is inadequate? What is the track record?
* What substance is there to the proposition that cat bonds are based on real, quantifiable risks, while other bonds are subject to subjective economic forecasting?
* What new science and new policy has arisen with the impetus of cat bonds?
* How does the rise of cat bonds intersect with Klein’s (2007) thesis that corporations use disasters to extract, with democratic oversight, changes in policies favorable to them?

Inquiry ahead: Find out who has written well about these questions.

Fortun, M. (2008) Promising Genomics. Berkeley, CA: University of California Press,
Klein, N. (2007). The Shock Doctrine: The Rise of Disaster Capitalism. New York: Metropolitan Books.
Lewis, M. (2007) “In Nature’s Casino” New York Times Magazine (26 Aug),

This 2014 article affirms almost all of the questions raised in my work-in-progress notes (above):


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