Case | HBS Case Collection | 1997 (Revised from original 1997 version)

USAA: Catastrophe Risk Financing

Abstract

Describes the first major risk financing using catastrophe bonds. Provides a basis for discussing the securitization of insurance risks.

Keywords: Financial Management; Insurance; Capital Markets; Natural Disasters; Risk Management; Bonds; Insurance Industry; Financial Services Industry; United States;

Format: Print

19 pages

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Citation:

Froot, Kenneth A., and Mark Seasholes. "USAA: Catastrophe Risk Financing." Harvard Business School Case 298-007, September 1997. (Revised from original July 1997 version.)

UAL is a large air transportation company with roots that go back to the 1920s. As a legacy carrier, going back to before the 1978 deregulation of air transportation markets, United Airlines is burdened with cost structures that make it difficult to compete with newer competitors. In addition, UAL has the burden of $7.6 billion in unfunded pension obligations and $2 billion in unfunded retiree health obligations. In June 2004, UAL is still operating under Chapter 11 bankruptcy protection, which began December 2002. It has needed extensions of the exclusivity period from the bankruptcy court. UAL's plan of reorganization is predicated on receiving $1.8 billion in loan guarantees from the Air Transport Stabilization Board (ATSB). But its request for loan guarantees from the ATSB was recently rejected. The company must decide what to do next and how to emerge from bankruptcy.

Kishore Karunakaran, President and COO of FFCM, faces a variety of challenges in launching an innovative investment management business in the rapidly evolving ETF space.

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USAA: Catastrophe Risk Financing

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