It seems catastrophe bonds aren’t the only way to hedge a cat. According to BusinessWeek, hedge funds are directly insuring catastrophes:

Collectively, though, hedge funds have huge sums available for catastrophe protection. That means much more hedge money is likely to flood in if rates remain high. Among the funds that have already entered the sector are Kenneth C. Griffin’s Citadel Investment Group in Chicago, George Soros’ Soros Fund Management, HBK Investments in Dallas, and Louis M. Bacon’s Moore Capital Management.

How Hedge Funds Are Taking On Mother Nature, by Peter Coy, BusinessWeek, 16 January 2006

This is partly a result of Hurricane Katrina in 2005. The article says it is different than what happened after Hurricane Andrew, the previous most costly hurricane, in 1992.

Why do hedge funds do this? Continue reading →