Catastrophe Bonds

In 1992, Hurricane Andrew struck Florida and inflicted 27 billion dollars worth in damage. As a result of the destruction, numerous insurance companies dissolved and went bankrupt after having to pay out an unanticipated amount of money to policyholders. As a result of the losses suffered during Hurricane Andrew, insurers and reinsurers reevaluated their risk exposure to hurricane zones across the country. Many other insurance companies left the market to avoid suffering a similar fate. They thought it would be too expensive and risky to offer insurance in Florida and other coastal towns. Subsequently, insurance prices in coastal communities rose…...