Here’s some unsettling news: The MTA thinks there is a good chance New York will be hit by another Hurricane Sandy within the next three years–or at least a good enough chance that the transit agency is hedging its bets against the possibility that there won’t be.
The MTA is selling a $125 million catastrophe bond; it’s money that will go toward managing flood risk, and offsetting the cost of future storm damage. The bond offers high interest rates, and protection from the volatility of the stock market. The catch is investors only get to keep their money if there is not another Sandy-scale disaster before 2017.
If there is a major hurricane in the next three years, the MTA takes all, and investors will be forced to forfeit their entire stake.
Hurricanes can be expensive for organizations like the MTA–Sandy cost the transit agency an estimated $5 billion in damage–but they can bankrupt insurance companies.
Back in 1992, Hurricane Andrew created $15.5 billion dollar loss for the industry; eleven insurance companies went under as a result. It was around this time, Michael Lewis explains in his riveting history, “In Nature’s Casino,” that the catastrophe bond industry was born.
The market boomed after Katrina, and is expected to reach record levels this year.
The MTA’s bond, issued by First Mutual Transportation Assurance Company, will trigger a payout if there is storm surge at Battery Park, Sandy Hook, Rockaway Inlet, East Creak, and Kings Point–and it is the first bond of its kind that pays out in the event of a storm surge.
No word yet on whether or not the bond covers Sharknados, like the one forecasters say is currently barreling toward New York.
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