a flood of bonds?

Interesting that Allianz have issued a flood bond, principally to bet against the chances of a huge flood washing away much of London’s financial and associated infrastructure along the Thames.

This one is for $150m and would protect Allianz from the wave [sorry] of claims that it expects would hit it in the event of such a catastrophe. They say that the chances are low but the financial impact very high, more so than a big US hurricane because (a) the City is pretty low-lying and (b) there is a very high density of companies there.

> It has until now been impossible to create flood bonds, because most countries lack precise systems to measure damage.

> British government agencies have recently been unusually active in developing such systems in flood-prone areas such as along the Thames. That has consequently enabled Swiss Re to develop the bond, which also covers North American hurricane and earthquake risk, alongside other UK floods. Insurers believe that certain disasters are so unlikely at the same time that they can use one to hedge against the other.

This sort of development should generally be welcome news to home-owners living in high flood risk areas, since it allows the insurers the opportunity to spread the risk wider and perhaps even start allowing these people cover once more.

source: FT (possibly subscription only).