MetroCat Re (MTA, 2013)
The cat bond the New York transit authority issued after Hurricane Sandy, the first to trigger on the water height of a storm surge.
Hurricane Sandy showed that an underground transit network is exposed less to wind than to water: the surge flooded New York's tunnels and low-lying stations, and insurers tightened terms at the next renewal. The transit authority then sought additional capacity in the capital markets, in the form of a parametric cat bond. The trigger does not measure damage but the peak water level recorded at reference tide gauges during a named storm, which allows a fast payout without adjusting claims. Basis risk is real, since the same water level can cause very different damage depending on the defenses in place, but it is known in advance and measurable. The deal opened the way for other public issuers seeking protection against one specific peril rather than across all of their property.
In August 2013, ten months after Hurricane Sandy caused about 4.75 billion dollars of damage to the Metropolitan Transportation Authority's network, the authority placed 200 million dollars of three-year MetroCat Re notes, triggered by storm surge height measured at New York tide gauges.
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