Waylon Wong

Until something happened that grabbed everyone's attention.

In 1992, Karen and her team were tracking this hurricane that had suddenly gotten very strong, very fast.

It was a Category 5, 160 mile per hour winds.

The name was Hurricane Andrew, and it was headed for Miami.

Exactly.

And now that the whole industry was paying attention to Karen's models, insurance companies realized, holy cow, we have not been buying enough insurance for our insurance.

If hurricanes are going to be this bad, we're going to need a lot more reinsurance.

This is when the insurance companies get an idea.

They're like, if we can't get enough reinsurance from Lloyd's of London, maybe we could also go around them.

You know, go straight to Wall Street.

There's a whole world of investors out there.

Maybe some of them might want to get in on this catastrophe reinsurance game.

That is, unless a big enough hurricane strikes sometime during those couple of years.

In that case, the investors don't get their money back.

The insurance company gets to keep that $200 million and use it to cover people who are rebuilding their houses.

For a long time, not that many investors were interested in catastrophe bonds.

Because even if you believed Karen's models, you were still literally betting on hurricanes and natural disasters.

These risks were a little too exotic for most of the starched shirts on Wall Street.

And Ethan's firm specialized in what are called alternative investments, like buying out people's life insurance policies or betting on the future sales of some life-saving drug.

And they were also early investors in catastrophe bonds, bought millions of dollars worth of them.