Tuesday, November 30, 2010

Good time to be in insurance

What a wonderful time to own hurricane insurers! 2010 marks the fifth consecutive year that the US has avoided any major hurricanes. (Source)

I once read that hurricane insurers were an excellent business to be in, because the business model is the equivalent of a put option writer who keeps all the premiums for himself but shifts all the liability onto the government because the claims usually bankrupt the firm. All upside - I think the moral hazard is readily apparent in this case.