The real estate risk fix: Residential insurance-linked securitization in the Florida metropolis

Abstract

Insurance-linked securitization (ILS) plays an increasingly important role in the protection of valuable real estate markets from devaluation due to climate risk. This paper critically investigates ILS in the Florida context, where billions of dollars of residential hurricane wind exposure are securitized on behalf of re/insurers and institutional investors each year. Building on Harvey’s seminal concept of the spatial fix, it is argued that ILS represents a real estate risk fix. ILS transforms uncertain property catastrophe exposures into a liquid asset class, and in doing so turns institutional investor funds into re/insurance capacity for capital-hungry ‘peak peril’ re/insurers. Securitization helps to sustain the circulation of capital through risky built environments by absorbing the catastrophe exposures of mortgages and other forms of property-linked finance. In this way, ILS provides a fix for the Harveyian spatial fix, one which momentarily offsets growing environmental barriers to property-led accumulation. The paper shows how specific modes of urbanization and property finance, waves of ‘natural’ catastrophe, patterns of public and private institutional intervention, transnational flows of risk capital, and the creation of new market-making devices have constituted ILS as a provisional (if extractive) fix. To this end, the paper furthers our conceptual and empirical understandings of the operation of ILS and re/insurance at specific urban conjunctures, while also highlighting key dilemmas associated with securing the real estate-finance system from climate risk.