Odum Coral Reef Studies - Today Parametric Insurance Deals Built On Coral Reef Impacts

So the Odum brothers did studies on the role of coral reefs in ecosystem protection - weirdly seems to have been grounded in the nuclear destruction of Eniwetok Atoll. Now there are insurance products built up around post-storm reef restoration. The first parametric payout on reefs was in 2020 in Mexico after Hurricane Delta. The Nature Conservancy seems to be playing a major role facilitating. I can’t figure out who the insurer was.


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Of course - Modern Portfolio Theory applied to investing in living systems. The Guardian last year.

" A Nobel prize-winning economic theory used by investors is showing early signs of helping save threatened coral reefs, scientists say.

Researchers at Australia’s University of Queensland used modern portfolio theory (MPT), a mathematical framework developed by the economist Harry Markowitz in the 1950s to help risk-averse investors maximise returns, to identify the 50 reefs or coral sanctuaries around the world that are most likely to survive the climate crisis and be able to repopulate other reefs, if other threats are absent.

The study recommends targeting investment in conservation projects that have the “strongest potential to succeed” in protecting priority reefs. The gains go beyond positive ecological outcomes and include crucial social, economic, health and nutritional benefits for communities, according to partners, organisations and funders interviewed by Blue Earth Consultants."

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Interesting little thread, origin of parametric modeling (allegedly) tied into Boston. So some of the earliest catastrophe bonds issued by governments were in the late 90s/2000s in the Caribbean and Mexico.

This document written by the FIRST initiative, who was contracted by the Mexican gov to advise on the CatBond in 2005, provides many details. FIRST is basically an arm of the world bank, funded by Germany, Netherlands, World Bank, IMF.

They state that the third party verifier ( the organization that determines whether a weather event met the threshold for payout) is AIR worldwide corp.

**AIR worldwide is based in Boston and the co founder Karen Clark is recognized as creating the first Catastrophe model **. The story goes that she predicted the over 13 billion in losses from hurricane Andrew in the 90s, which spurred the interest in their product and that type of thinking.

Jersey City based Verisk bought AIR in the early 2000s. But as of 2022 AIR is still listed as modeler for over 70% of all outstanding cat bonds.

VeRisk is a huge company and also owns Lexington Mass based Atmospheric and Environmental Research (AER), which it bought in 2008. AER was founded in 1977

Capitalizing on Dr. Sze’s doctoral thesis on the photochemistry of the atmosphere of Venus, AER received its first research grant in 1977 to work on an analogous photochemical model for our own planet, concentrating on the stratospheric ozone depletion problem. Dr. Sze’s discoveries ultimately led to the global shift away from chlorofluorocarbons (CFCs) and other harmful pollutants and toward prevention of further depletion of the ozone layer.

AER quickly established a reputation for research integrity and attracted top-flight scientists. Throughout the 1980s, the company both broadened the scope of its research initiatives and expanded into more complex applied research programs. Between 1977 and 1993, AER was awarded research contracts by many of the leading government agencies, including the National Science Foundation, the Office of Naval Research, the Air Force Research Lab, the Department of Energy, NASA, the Federal Aviation Administration, the National Oceanic and Atmospheric Administration (NOAA) and the Department of Energy. The applied research conducted during this time formed the basis for many of the technologies AER uses today.

Also from the histpry sections:

These accomplishments laid the groundwork for AER’s next phase – to successfully transform subsidized applied research knowledge into end-user technology used by both government and industry. Beginning with the NPOESS program in 1996 and continuing through GOES-R (2009) and EWS (2021), AER led cutting-edge development of operational satellite algorithms supporting DoD and civilian customers. The acquisition of Radex (2004) added space weather research and weather impact decision aids to the AER portfolio.

Verisk definitely warrants further looking into if yall haven’t already. Regardless its good context for origin of parametric modeling for insurance. There alot of different leads with AIR and especially AER. I haven’t looked at VeRisk itself much yet.

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Thanks for all your work on this Leo.