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USAA’s new meteor catastrophe bonds could pay as much as 15%. And should you find yourself holding them when the big one hits, who cares? There’s no guarantee civilization will survive anyway.
United Services Automobile Association, an insurer, is poised Thursday to issue the first ever catastrophe bond that will hinge in part on space rocks hitting the U.S….
The riskiest tranche of USAA’s four-year bond–the chunk that would suffer losses sooner than others–is expected to yield about 15%, according to a person familiar with the matter. The issue will raise a total of about $130 million.
On the other hand, it isn’t exactly all free money or extinction.
While the risk of catastrophic meteorite damage might be remote, investors could also lose money on the USAA’s bond in the event of earthquakes, volcanic eruptions, wildfires and various storms and cyclones in any of the 50 U.S. states….
“Meteorite risk is a very remote risk, and therefore as an investor we hardly get any compensation for it,” said Daniel Ineichen, a fund manager at Schroders, whose funds manage more than $1.4 billion of insurance-linked assets. “We prefer traditional risks that you can model for.”
Meteor Bonds. Oh Yes. [WSJ MoneyBeat blog]