Warren Buffett notes that neither he nor anyone else knows whether the many big hurricanes of 2004 and 2005 were an aberration or the beginning of a trend, but super catastrophe bonds are the likely insurance response.

Don’t think, however, that we have lost our taste for risk. We remain prepared to lose $6 billion in a single event, if we have been paid appropriately for assuming that risk. We are not willing, though, to take on even very small exposures at prices that don’t reflect our evaluation of loss probabilities. Appropriate prices don’t guarantee profits in any given year, but inappropriate prices most certainly guarantee eventual losses. Rates have recently fallen because a flood of capital has entered the super-cat field. We have therefore sharply reduced our wind exposures. Our behavior here parallels that which we employ in financial markets: Be fearful when others are greedy, and be greedy when others are fearful.

— To the Shareholders of Berkshire Hathaway Inc, Warren Buffett, Annual Report, Berkshire Hathaway, 28 Feb 2007

So the current super-cat market is unsure because a lot of capital has entered, yet not as many events happened last year as expected.

-jsq

PS: Seen in Warren Buffett on Risk Management, Gunnar Peterson, 1 Raindrop, 2 March 2007.