Well.
Maybe.
I go out of my way to learn something new every morning, maybe it's something simple, global events and whatnot. Maybe something complex like global bond market methodology.
Today it's that second one. :P
Look at that lovely statistical formula.
Quite clever indeed.
The formula for what human life is worth
Ever hear of "cat bonds" before? I hadn’t.
Catastrophe bonds are a system by which the providers of insurance insure themselves against potentially massive or unrecoverable losses from major disasters -
By issuing a bond they gather huge sums of capital.
If everything goes smoothly, they pay back principle and interest on each.
If the shit hits the fan in precise accord with the bond,
They keep the money.
Now.
If you hold the insurance company end of this tiger's tail, what that means for you is that you will profit enormously from catastrophic failures and loss of life.
Hmm.
Usually it's the insurance company's bag to profit more from people's roofs NOT blowing off. One imagines them, generally, to be rooting for the architecture, not the tornado.
And then helping people get back on their feet after tragedy strikes.
How noble.
In theory.
I suppose the grim specter of evil intent is at bay, since companies can’t cause their own hurricanes, earthquakes, tidal waves, etc.
Except...
“For instance, the spring of 2015 saw the rapid sale of 285 million euros’ worth of mortality cat bonds issued by Benu Capital Ltd., a shell company incorporated in Ireland (the cedant is AXA Global Life, Paris-based banking and insurance conglomerate). This bond is triggered by “excess mortality” in France, Japan, and/or the US over a five-year period ending in 2019.”
Here we find a bond with a parametric trigger solely based on loss of human life. Although the details of such bonds are not disclosed publicly, no specifics are offered as to method of loss of life.
France is in the news lately, let’s play on that.
Say I’ve speculated my way onto the receiving end of 285 million Euro for a few hundred thousand casualties. What’s to stop me from bankrolling ISIS and handing them a nuclear device with a nominal yield precisely matched to my formula for doom?
I can calculate how many megatons I need for the best payday!
Maybe France is a bad example, because the likelihood that somebody would WANT to bomb them is low. But surely Middle Eastern people have insurance too, and we seem to enjoy blowing them up by the hundreds. Or perhaps the rate increases in a small and sparsely populated high wealth area like the Bahamas, where there wouldn’t be too many people to bet on in the first place.
More realistically, with a mortality estimate including France, Japan, and The US, your best bet would actually be a third world war. So maybe you start pushing Putin’s buttons over mid east oil, or the Crimean border - maybe you conjure up a media shitstorm to try and curry favor from US citizens to support invasion.
Stir the pot, see if you can get someone hot enough under the collar that they fire the first shot, then grab your bags of money and run for the hills.
What’s to stop them? Besides some inexpensive laws they can circumvent with piles of cash.
Just the inherent good nature and respect for all life that is required of professional stock brokers. And lawyers.
coughs
If you start speculating, as stock market types are known to do, you’ll see the possibilities are limitless and horrifying. If only I had access to a portfolio of existing cat bonds, their issuers and financiers, I’ll bet I could find some strong correlations between companies that hedge their bets on rail disasters and their parent companies that ship petroleum on those same railways - who are known for their tendency to tip over a few million gallons of crude a year into your local estuaries and wildlife refuges.
Now if you’ll excuse me, I have to go shoot the shit out of some baby seals,
Or I’ll have to pay out 105% on my bond that bet they’d be extinct by 2017.