Thursday, July 26, 2007

Could Hurricanes Blow Subprime Debt Investors Away?

What happens if large-scale hurricane losses arise when securitized debt markets are tanking or seizing up? Might reinsurers be required to fund claim payments at the same time they face losses and illiquidity in their investments?

In 2005, hurricanes Wilma, Rita, and Katrina wreaked devastation in Florida, New Orleans, and much of the Gulf Coast. Insured losses set a record for a single year. Catastrophe reinsurance providers took a significant hit, but they generally stood behind their promises to pay catastrophe claims.


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