City of London’s new investment play — catastrophe bonds
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The City of London, historic investors in everything from U.S. railroads and the reconstruction of Europe after Napolean to the creation of maritime insurance for the global shipping sector, is now taking aim at climate change catastrophe bonds.
Convinced that global warming will lead to new financial markets investing in risk of extreme heat and violent storms, Europe’s financial center sees the nascent market for insurance-linked securities and catastrophe bonds as a natural new frontier.
At roughly $140 billion and almost entirely based in Bermuda, according to Bloomberg, the market to layoff climate risk by insurance companies has exploded in recent years as temperatures soared and rainstorms and hurricanes have become more damaging. Reinsurance giant Flood Re recently issued a cat bond valued at $187 million, the news service reported.
The CAT market has been largely dominated by a few U.S. hedge funds in recent years, but the insurance industry is global. And largely based in London. So it makes sense the Bank of England and the UK’s Labour Party government would want to find ways to ease regulations to make it easier to compete with Bermuda as the market grows.
Given the strength of Lloyds of London it’s a fair bet that the City will make some inroads into the young business. As extreme heat devastates Europe again this summer, investors will be attracted to any sort of way to make money by speculating on the damage global warming will create.
With the booming business in prediction markets such as Kalshi growing by the day, we can expect CAT bonds will continue to grow and that they will soon attract more regulatory attention. That puts the City in a unique, and historically comfortable place to compete for the new business.
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Rivian’s stock offering crossroads
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Companies typically raise money in stock offerings when they need money to grow, but sometimes — after the companies have gone public — investors interpret that as a sign of weakness. It can dilute the shares after all.
But in this case the sudden drop in shares appears more of an opportunity to enter a market for shares of an innovative company that appears to be growing in all of its important metrics in a very tough industry.
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Words to live by . . . .
“There is nothing I like better at the end of a hot summer's day than taking a short walk around the garden. You can smell the heat coming up from the earth to meet the cooler night air.“ — Peter Mayle, British author.