Insurance, Recovery, and Economic Resilience

Hurricane Andrew, which struck Florida in August 1992 causing roughly $27 billion in damage, drove eleven insurance companies into insolvency and exposed how poorly the traditional insurance industry had priced the risk of a truly catastrophic hurricane; in its aftermath, the reinsurance industry developed catastrophe bonds ("cat bonds") in the mid-1990s, a financial instrument in which investors receive high yields in exchange for agreeing to forfeit some or all of their principal if a specified disaster, such as a hurricane of a given intensity making landfall in a defined region, actually occurs, effectively transferring catastrophic risk from insurers directly into global capital markets.