Jeff Guo

A lot more customers.

And at the same time, the reinsurers, like the folks at Lloyd's, they were realizing, oh, no, this hurricane reinsurance is actually a really dangerous market to be in.

But even with those higher prices, there still wasn't enough reinsurance to go around.

By the late 90s, the whole insurance industry was facing this shortage of reinsurance.

And this, this is the defining moment, not just for Karen, but for the whole insurance industry, because this is the moment when the catastrophe bond is born.

A catastrophe bond is basically a way for insurance companies to sidestep the reinsurance industry, to get reinsurance not from reinsurance companies, but from a much broader pool of people, from investors.

And here we should take a minute to explain how these catastrophe bonds or cat bonds actually work from the point of view of the investors.

Basically, it's like making a loan to the insurance company.

Investors might put up $200 million and the insurance company hangs on to that money for a couple of years.

And in the meantime, pays the investors a bunch of interest.

Then, after a couple years, the investors get their original $200 million back, plus all of that interest.

So with cat bonds, the investors are taking on a major risk.

They could lose all their money with one big catastrophe.

This is where Karen's models come in.

Her models made this market for cat bonds possible because they could show investors exactly what risks they were taking on.

But for some investors, the weirdness of cat bonds, that was kind of their appeal.

Back in the 2000s, Ethan Powell was a manager at a multi-billion dollar investment firm based in Dallas, Texas.

And there's one big reason why investors like Ethan chase these kinds of alternative investments.

In fact, it's a very traditional reason.

The goal is diversification.