2016 Investors’ Prospectus
Monetizing Tomorrow’s Risks, Today

Scott Gabriel Knowles,
Chief Risk Whisperer (CRW)

Owen Gaffney,
Vice-President of Existential Catastrophes

Emily Klancher Merchant,
Director of Emergence

In the Cold War years, nations worried about nuclear annihilation. A valid fear, but impossible to insure against. It was a time of existential gloom, compounded by financial irrationality. In 1965, however, hope appeared on the horizon in the form of Hurricane Betsy, a Gulf Coast-leveling storm that set the standard as the world’s first billion-dollar weather event.

Today, a billion-dollar storm might not even make the headlines. Since 2000, the minimum annual cost of disaster losses globally has been $62 billion. In 2011, the 3/11 Japanese Triple Disaster cost $105 billion bringing the total cost of disasters for the year to an eye-popping $463 billion. Emergency managers, the UN, and relief agencies look at these numbers and rightfully see the increasing misery of the world’s disaster-affected populations. The shrewd investor agrees, but also foresees … opportunity!

What is reinsurance?

A QUICK primer: insurance is a financial in-strument, purchased by both private and public actors, designed to provide financial reimbursement in the event of a loss. Reinsurance is a financial instrument that provides insurance for insurers ‒ allowing institutions that broker large quantities of risk to minimize their exposure in the event of high-loss years.

Reinsurance companies make up some of the largest financial services players in the world today: firms like Swiss Re, Munich Re, Berkshire Hathaway, and Willis Re are solid fixtures in the reinsurance market, selling reinsurance to governments and to retail insurance companies.

Anthro-Re markets to these traditional customers; in addition, it allows the private consumer the opportunity to get in on the exciting and lucrative market in global disaster-risk speculation.

What is the “Anthropocene”?

Academia is at it again, making up new words and arguing over things that few of us understand. But once in a while academics come up with something applicable in the insurance world, and the recent scholarship on the “Anthropocene” is one of those. If you think it sounds like a geological term, well, you’re right. The Anthropocene, put simply, is a new geological epoch: a period marked out by the imprint of human activity on the Earth. Humans have been around for 200,000 years, but in the last sixty years, we have managed to become the most dominant force in the global ecosystem. We have altered the carbon cycle, the water cycle, the nitrogen cycle, and the phosphorus cycle. We are making the oceans more acidic. We are driving the sixth mass extinction of life on Earth. The fifth, 65 million years ago, killed the dinosaurs.

These facts in and of themselves are interesting to all of those people who are locked in ivory towers, but they are hardly marketable. The crucial insight comes when we think about the risk-creation mechanisms of the Anthropocene. To take climate change as only one example; the Anthropocene is an era of unpredictability and volatility in global systems ‒ driven by our economic choices. Weather and climate, infrastructure and energy, human health and migration ‒ in each of these areas the Anthropocene will see disasters on a scale unprecedented prior to this point in human history.

From “Acts of God” to “Acts of GAD” (Global Anxiety from Disasters)

THE ANTHROPOCENE nullifies the insurance catchall phrase “Act of God” ‒ legalese, which used to describe “natural” events that seemed beyond human causes. Human activity has now dissolved the line between the natural and the man-made.

The economic impacts are startling, and worth our attention. In 2013, disasters globally cost $198 billion. Out of these direct economic losses, insured losses reached $48 billion. Insured losses over the past 15 years range between a quarter and one-third of the total economic losses from global disasters. Notice from these statistics that there is a vast difference between the cost of disasters and the insured losses from disasters.

This gap offers two types of opportunity. First, risk is increasing! In the aggregate, actual loss-amounts indicate a global trend towards spiraling disaster costs. Infrastructure damage, crop losses, personal injury, and death: each of these is an area where consumers in every sector feel fear, and this fear motivates the purchase of insurance.

But, there is another, more subtle factor here. In the space between real losses and insured losses, we also see the real chance for market success, as most disaster losses will never be reimbursed through Insurance. In other words, the desire for insurance is rising, and yet the global-risk system is too complex for the average consumer, or even the average treasury, to understand. Global-disaster anxiety provides the basis for the market. To capitalize, reinsurance keeps one foot in this realm of anxiety, while the other foot leaps boldly ahead into scientific risk avoidance. Successful reinsurance companies effectively anticipate disaster anxiety, while using our scientific knowledge of risk probability to avoid (to the greatest extent possible) getting caught in the “reimbursement zone.”

What is the value proposition of Anthro-Re?

Haven’t the “big boys” of reinsurance already figured out this market, you may ask? Yes and no. The fact is that the big reinsurance companies, like the governments and insurance companies they insure, are trapped in pre-Anthropocene thinking. Their risk models look at climate change as a black box. They have not yet considered the new financial instruments (instruments that will be risky and will need reinsurance) that could help reduce risk for dryland farmers, to take one example. They have not looked closely at the possibilities for monetizing mass migrations of people as the result of drought and drought-induced warfare. They have no capacity to think of disasters as compound occurrences ‒ like the earthquake‒tsunami‒nuclear disaster experienced in Japan in 2011. And, most importantly, they see disasters as “events,” with a beginning, middle, and end. The reality is that disaster is now a permanent condition ‒ a slow and steady accumulation of financial losses that will unfold over centuries. By shifting our business model to meet this new environmental reality, Anthro-Re is an innovator. The Anthropocene is real, so let’s monetize it.

Allow us now to outline some of Anthro-Re’s unique products and services.

Emerging and Submerging Markets

It has become clear that sea levels are rising as the result of climate change and glacial melt. This rise is slow but perceptible, occurring at an average rate of about 0.14 inches (3.5 mm) per year since the early 1990s. As sea levels change, some parts of the world will find themselves submerged. Others will acquire new territory as the result of glacial melt, or new oceanfront property as the result of changing sea levels. Populations will move away from submerging markets and toward emerging ones. Anthro-Re offers reinsurance for submerging and emerging markets.

+ Coastal Cities ‒ Submerging
The first sign of a submerging market is frequent or more intense flooding. In 2008, Venice experienced its worst flood in twenty years, with water nearly waist-deep in St Mark’s Square. With rising temperatures and sea levels and increasing storm intensity it won’t be long until this record is surpassed.

Miami Beach has become notorious for flooding during high tide, even in the absence of storms, and this flooding is only getting worse. Flooding in coastal cities increases risk for residents and industry alike, and the tourist industry stands to be particularly hard hit as many of these cities stand to lose their status as prime vacation spots. Currently, governments are the main providers of flood insurance, as traditionally this area has been seen as too risky for the private insurance market. By offering reinsurance for coastal city flood policies, Anthro-Re seeks to both monetize this growing risk and increase the availability of coverage.

+ Coastal Cities ‒ Emerging
As sea levels continue to rise, the old coastal cities will submerge and new ones will emerge. For example, when Santa Monica goes under, Pasadena may find itself with a new coastline, and national and local governments and business interests will want to quickly develop and monetize newly created oceanfront properties.

Anthro-Re offers a product to governments in regions that may experience the emergence of new coastal cities. When the time comes, wealthy populations and tourist industries will move from submerging to emerging coastal cities. In other cases, governments will build coastal economies from scratch if the country currently has no coastline. These movements and associated construction will require insurance. The long and uncertain time horizon on sea-level change means that investors could be collecting money on these insurance products for decades before reimbursement becomes a possibility.

+ Immigration Insurance
While many large coastal cities can be insured against flooding, most small island states cannot, and will soon be underwater. However, Anthro-Re offers a product to insure other governments against the risks and costs of the growing number of climate refugees who it is predicted will seek settlement as their countries are submerged. Europe has already been inundated with refugees from Syria, Eritrea, and elsewhere as the result of ongoing climate-induced warfare. Climate change will only exacerbate this problem as refugees from small island states join the stream of migration, not only to Europe, but also to North America and particularly Australia. Settling refugees is costly and potentially dangerous, yet turning them away is also costly, both financially and politically. With immigration insurance from Anthro-Re, governments can rest assured that when the masses arrive, they will have the resources to deal with them, one way or another.

+ Post-Glacier Settlement
As glaciers melt and global temperatures rise, land currently covered by ice will become available for human settlement, and may prove to be prime farmland as the aridity line moves farther north. Governments will want to be prepared to take advantage of these lands as soon as they come available, both to resettle coastal or refugee populations and to build new agricultural economies as our current agricultural lands become desert. Anthro-Re’s post-glacier settlement product will provide governments with the resources they need to develop these markets as they emerge.

+ The Drought Opportunity Zone
Farmers and pastoralists, especially those engaged in dryland farming and herding, are understandably risk averse. Such farmers plant the most reliable crops ‒ and for that reason, while they may not starve, nor are they earning as much from their land as might be possible were they willing to accept more risk of crop failure. The same holds true for the more conservative pastoralists. According to the World Bank, “agricultural insurance could complement mitigation and coping mechanisms by both reducing vulnerability and providing a foundation for production-boosting investments in agriculture. This scheme could help to lift hundreds of millions out of poverty.”

Over recent years, there have been many pilot agricultural and pastoral insurance projects in East Africa, but success has proven limited. Dryland insurance in such economically challenged zones relies on successful public‒private partnerships.

What has been missing thus far is the presence of a competent institution in the middle providing data and financial resources ‒ and this is where the Anthro-Re Dryland Reinsurance Product comes into play. Governments, the UN, retail insurers, and private agricultural mutual associations could use this product to bolster their agricultural insurance investments. The results: innovative bumper crops, humanitarian relief, profit, and peace of mind.

The CAT Bond Division

It’s pretty simple: cat lovers love cats. They bond with them. In the Anthropocene, “cats” are catastrophes and “cat lovers” are reinsurance companies that bond with them through financial instruments called CAT bonds. CAT bonds are a mechanism through which financial markets can provide high returns ‒ in the order of 9% ‒ by speculating on large-scale natural catastrophes.

This is becoming big business. In April 2014, Florida’s insurer of last resort issued the largest ever CAT bond for a cool $1.5 billion. In the same year, the African Union issued a $1 billion CAT bond covering climate-related extreme events. In 2013, New York shut the stable door after the proverbial horse had bolted when it issued a $200 million CAT bond following Hurricane Sandy.

So how does a CAT bond work? Imagine you are a large Asian city, let’s say Manila. Let’s say for the fifth year in a row the strongest typhoon in the history of meteorology is about to crush you. In the past, you’d have had to deal with it. Not now. With Anthro-Re, you could issue a CAT bond; let’s say for $1 billion. You sell your bonds up to $1 billion on the international market. Investors can buy the bonds on the promise of a whopping annual return on investment. If the typhoon decides to cruise by Manila, investors cash in. But if the typhoon crashes through Manila, the CAT bond helps deal with the insurance claims (and investors lose).

+ CAT Gambling
CAT bonds can be issued for earthquakes, hurricanes, droughts, floods, you name it. They are purchased by pension funds, hedge funds, sovereign wealth funds, and wealthy individuals, eager for high returns, and willing to take a chance. We’re looking at you Warren Buffet.

We establish stringent parameters for our CAT bonds. If certain pre-agreed conditions are met, if the typhoon reaches a specific wind speed, if the area affected is specified in the terms of the agreement, if the typhoon hits within the specified period, then an investor loses. If these conditions are not met and the typhoon causes no insurable losses, then the investor wins. The more Anthro-Re knows about the weather (and we know a LOT) the more likely we can offer investors betting opportunities such as these, without Anthro-Re coming up on the wrong side of the catastrophe.

+ Live CAT Trading
With Anthro-Re, you can now bet on approaching catastrophes ‒ live! As a catastrophe approaches, for example Hurricane Katrina, investors may get jumpy and want to offload their CAT bonds onto the market. If you have nerves of steel, you can pick up a bargain.

Anthro-Re will also extend the CAT bond market to include nuclear meltdown (fusion and fission), meteorite and asteroid impacts, droughts, groundwater depletion, ozone depletion, sea-level rise, deforestation, AI, genetic engineering, geoengineering, and other deliberate or accidental modification of fundamental planetary biospheric functioning. Insurers and governments now regularly take out Anthro-Re policies to lower their risk from these types of hazard. Investors will be ready to gamble that such events may not happen. Anthro-Re facilitates (and prospers) through brokering such risk-taking on the risk-taking. Live trading, of course, will be available for the discerning investor.

Our MicroCATbond Division (coming soon!) goes from global to hyper-hyper local. We provide catastrophe-risk bonds on areas ranging from one square centimeter to 100 square meters anywhere on Earth, and in the vicinity of Earth!

Conclusion

We hope that this brief introduction to Anthro-Re’s approach and to its products has you reconsidering the possibilities inherent in global-scale and regional-scale collapse. The future used to be uncertain ‒ now it is certainly uncertain, and most likely it will be terrible. Why wait to seize this moment? Join Anthro-Re today and let’s work together to understand the profitable possibilities of the Anthropocene.

*Anthro-Re is not a real reinsurance corporation. It was created as a thought experiment in the Anthropocene Campus Geopolitics Seminar, hosted by Eyal Weizman, Adrian Lahoud, Nabil Ahmed, and Godofredo Pereira at HKW, Berlin, in November 2014.