The MTA Procures Storm Surge Protection via the Catastrophe Bond Market
Where the bets are big and the potential payoffs even bigger
NOAA does have a program called HURISK, which models the return paths for storms along the coasts. That, Franklin says, offers some idea of the odds that a Sandy-size storm will return to the city: "For New York City, it's once every 175 years for a major hurricane, and once every 25 years for a hurricane."
Even if New York does see a second superstorm sooner than predicted, the surge would have to hit at a certain angle to flood the subway system.
"A storm that parallels the coast and comes into, say, Long Island from the south-southwest—it would count as a hurricane, but it wouldn't be approaching at the right direction to cause a lot of flooding in the New York subway system," Franklin explains. "Only certain orientations of the hurricane would do that kind of damage."
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Put simply, Franklin says, "To get another surge event like that in New York in the next three years is really unlikely."
In other words, investors are likely to make a killing. According to Risk Management Solutions, Inc., the agency the MTA employed to calculate the risk, there's only a 1.67 percent chance of an equivalent storm surge every year.
The odds are firmly in favor of the bettors, to whom the MTA is prepared to shell out $27 million.
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