I worked in the cat industry for a few years and I take huge issue with the author's conclusion.
"Indeed, some specific corporate entities are large enough in themselves to be meaningful drivers of such changes. Upon which those same entities are now in a position, potentially, to capitalize, by means of well-placed cat bond bets. Which, looked at this way, amount to bets on a game in which they are actual players. "
Let's look at how someone could make money off of a parametrically-triggered cat bond:
1.) The "profit" is taking out a loan and not being required to repay it.
2.) The event occurs within the timeframe of the bond (3 years max, the Artemis site may reveal some longer terms but in my experience most are relatively short).
3.) The bond issuer has no offsetting exposures (i.e. an insurance company that does NOT write earthquake insurance issuing an earthquake bond).
While all of these are theoretically possible, the mechanics of the cat bond market make all 3 occurring at once highly unlikely and probably a terrible investment. The bankers selling the bond would have a difficult time finding buyers for a non-insurance entity. The cat bond being triggered would immediately focus a lot of attention on the issuer, leading to some pretty terrible PR. The list goes on.
Simply put, it is a huge unleveraged bet on something the issuer MAY have some control over. If an issuer wanted to adversely affect a number of innocent people for financial gain, there are a lot more profitable ways to do it via lobbying or other means.
Cat bonds are very interesting and complex instruments and the dominance of a few catastrophe models is an issue, especially when they are wrong (the Tuscaloosa and Joplin events led to many investors in a few bonds losing their principal because the probability of these tail events was grossly underestimated).
This sounds more like an academic looking for another way to demonize a socially beneficial area of finance.
"Indeed, some specific corporate entities are large enough in themselves to be meaningful drivers of such changes. Upon which those same entities are now in a position, potentially, to capitalize, by means of well-placed cat bond bets. Which, looked at this way, amount to bets on a game in which they are actual players. "
Let's look at how someone could make money off of a parametrically-triggered cat bond: 1.) The "profit" is taking out a loan and not being required to repay it. 2.) The event occurs within the timeframe of the bond (3 years max, the Artemis site may reveal some longer terms but in my experience most are relatively short). 3.) The bond issuer has no offsetting exposures (i.e. an insurance company that does NOT write earthquake insurance issuing an earthquake bond).
While all of these are theoretically possible, the mechanics of the cat bond market make all 3 occurring at once highly unlikely and probably a terrible investment. The bankers selling the bond would have a difficult time finding buyers for a non-insurance entity. The cat bond being triggered would immediately focus a lot of attention on the issuer, leading to some pretty terrible PR. The list goes on.
Simply put, it is a huge unleveraged bet on something the issuer MAY have some control over. If an issuer wanted to adversely affect a number of innocent people for financial gain, there are a lot more profitable ways to do it via lobbying or other means.
Cat bonds are very interesting and complex instruments and the dominance of a few catastrophe models is an issue, especially when they are wrong (the Tuscaloosa and Joplin events led to many investors in a few bonds losing their principal because the probability of these tail events was grossly underestimated).
This sounds more like an academic looking for another way to demonize a socially beneficial area of finance.