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High up on the unusually brown sand, I come upon the remnants of a woman’s rust-red sweater. Someone has discovered it before me and has weighted it down with a two-by-four. Citizens have been asked to mark recovered materials in that way so that official investigators can examine them. The lightweight merino wool fabric is worn thin from being in the salt water. About half the sweater has been ripped away. What remains is one complete sleeve and part of the front, but there is enough here to suggest that the woman who wore it was small.

The sweater is enmeshed in a dark cluster of seaweed and reeds, so its off-red color looks especially bright in contrast. John Millington Synge wrote that the most beautiful thing in the world is a red rag on a hedge–a fragment of human life clinging like a memory to nature, or vice versa. The picture created by this juxtaposition, he said, was of “the splendid desolation of decay.”

I recall the quotation as a kind of intellectual reflex, but feel only sorrow. On Friday afternoon, I met, in a stationery store in East Moriches, a man who was at the end of his rope. He was one of the first to get out to the crash site on Wednesday night. A construction contractor in his early 50s, he had a fine open face, though his blue eyes were full of grief.

He and a friend had gone out in a whaler ahead of the Coast Guard. He confessed that the two of them were almost exhilarated at the prospect of pulling survivors out of the dark water. “We saw floating bodies, two or three,” he said, “but we let them pass. We were looking for the living. After awhile, we knew that nobody had made it, so we started pulling in the dead. I brought up a woman whose legs were missing. I’ve seen dead people before, but nothing like that.

The Coast Guard sure hadn’t seen anything like it. Nobody says this, but ‘the Coast Guard’ means 18- and 19-year-old kids. When they came upon the bodies they were screaming into their radios for help.” He said he didn’t know why, but he couldn’t stop talking about what he saw out there. He said that his friend hadn’t slept a minute since Wednesday. “We found two more ladies. They were naked.” He spoke with both a hushed respect and puzzlement.

“It was not like their clothes were burned off,” he said. “But they were naked. How does that happen?”Since Wednesday night, the people of this area have either watched the news or become part of it. All have been affected by it. A bulky man who runs the liquor store in East Moriches told me that he would be enraged if it turned out that the downing of the plane was the work of terrorists, but said that all he could feel at the moment was a sadness so inexpressible it brought him to tears.

Like most everyone in East Moriches, Center Moriches, Speonk and the other towns in the middle of Long Island, he is an ordinary working-class American. But his despairing tone of voice is no different from members of the more pampered vacationer class in Westhampton, Quiogue and Quogue. Everyone feels a kinship with the victims, and perhaps suddenly with everyone else. “I cannot bear to watch the families anymore,” said a woman who lives here. “The bodies are so badly decomposed they are unrecognizable. They say they recovered over a hundred, but who are they? That man who lost his wife and daughters. That man who was about to be married in Paris….”

Tire tracks run the full length of the Quogue beach, creating a highway of pebbles and broken shells between them. Flags at the beachfront houses fly at half-staff. The water is the dark silver-gray color of oceans in war movies–an ominous, undulating field. I study the rust-red sweater one more time before I move on. I reach down and take a small section of it between my thumb and index finger, rubbing it the way a child rubs a security blanket. The fabric is worn so thin, it nearly comes apart to the touch. Held up to the fierce sunlight, the stitching becomes a spider web, a gauze, a lattice-work wall. The end of the sleeve catches my eye, and I hold that for a while, my hand enveloping the point where the sweater embraced a wrist. I look at it without thought, and let it drop. This is the picture here at the end of the week: sand, ocean, the detritus of a disaster and people walking up and down, nodding to one another as they pass.

Despite soft reinsurance market conditions, the number of securitization deals is growing as sellers and buyers become more familiar with products like exchange-traded catastrophe options, cat bonds and contingent capital deals, experts said last week at a conference sponsored by the CNA Re unit of Chicago-based CNA Financial Corp.

Open interest in PCS catastrophe options on the Chicago Board of Trade has grown steadily since 1995, in recent months reaching nearly 20,000 contracts. The number of cat bond issues and swap deals, meanwhile, also has picked up this year, with one issuer – San Antonio-based auto insurer United Services Automobile Assn. – oversubscribed for a second hurricane bond issue in July after completing a successful first issue in 1997.

Investors are more interested in cat bond issues for several reasons, noted Anthony Chiarenza, chief executive officer of Hedge Financial Products Inc., a CNA securitization unit.

For one thing, the financial performance of cat bonds is uncorrelated with traditional investments such as stocks, bonds and commodities, allowing investors to diversify their portfolios. While interest rate-sensitive stock and bond markets fluctuate with every speech by Federal Reserve Chairman Alan Greenspan, for example, cat bonds are not similarly affected, Mr. Chiarenza said.

“If you are sitting on a one-year cat bond, it doesn’t matter what he says,” Mr. Chiarenza observed. “The point is, it’s a non-correlated risk.”

Investors can’t get similar diversification by investing in insurance and reinsurance company stocks, he added, because they are still affected by market fluctuations and factors other than the insurance risk itself.

In addition, risk-adjusted rates of return have so far been higher for cat bonds than for a number of other traditional stock and bond funds, including the Standard & Poor’s 500 Index, he said.

To gain acceptance as a distinct “asset class,” though, securitized insurance risk must grow to encompass casualty and other risks besides cat exposure, Mr. Chiarenza said.

“If we are going to develop this market, we need to create a real asset class” that includes eight to 10 independent or “low correlation” types of risk, he said. “We clearly need something else. The catastrophe business (alone) is not going to do it.”

He offered several candidates for securitization, including:

* Agricultural risks, where deals could cover damage to crops caused – for example – by Midwest drought. The cost of catastrophic weather-related damage to agriculture is now borne largely by government entities and could be shifted to the private sector, he said.

“There is $10 billion, $15 billion, $20 billion of risk here that could be securitized,” Mr. Chiarenza said.

* Aviation risks, where coverage might be triggered by number of lives lost in air crashes; and marine risks, where bonds or swaps might cover specific oil rig losses. Securitizing these risks would be tough because traditional insurance markets are now so competitive, he observed.

* Pollution events, which could be covered in deals triggered by the number of barrels of oil spilled, for example.

* Insurers facing a risk of being clobbered by losses on long-term disability policies by higher-than-expected nursing home utilization rates.

* Weather-related events, such as losses or additional costs suffered by utility companies in heat waves.

* Casualty exposures, such as directors and officers liability, errors and omissions or workers compensation.

The problem securitizing liability lines, experts at the meeting agreed, is that losses are less predictable than in property lines, and it is therefore tougher to develop loss indexes needed to standardize a capital markets product.

Securitized transactions to date have included cat bonds, contingent capital deals and exchange-traded products like the CBOT’s PCS options, noted Debra L. McClenahan, executive vp and senior financial officer of CNA Re.

In a typical cat bond deal, an investor’s return is contingent on a catastrophic event. Payments to an issuing insurer can be triggered by a variety of things, including the insurer’s own losses, industry losses or the occurrence of a specific event. A 1997 deal covering Tokio Marine & Fire Insurance Co., for example, is triggered by Tokyo earthquakes exceeding magnitude 7.1 on the Richter scale.

The deals can be structured so that investors’ interest alone is at risk, their interest and principal or a combination of the two. USAA’s 1997 bond issue, for example, consisted to two “tranches” of bonds, one in which only interest was at risk and the other in which interest and principal were at risk.

In contingent capital deals, an insurer secures a commitment of a capital investment if a triggering event like a hurricane occurs. These deals allow an insurer to set the terms of a capital infusion when it is in relatively strong financial condition rather than after a catastrophic loss, when it is in a less favorable bargaining position, Mr. McClenahan noted.

The “option premium” an insurer pays for a contingent capital commitment is typically less than the cost of traditional reinsurance, she added.

The other category of capital markets products is exchange-traded instruments, which – in addition to the CBOT’s products – include catastrophe swaps available through the New York-licensed CATEX facility and products on the Bermuda Commodities Exchange.

Rather than competing with capital markets, traditional reinsurers can play a large role in risk securitization, Ms. McClenahan said.

Reinsurers have underwriting, pricing and auditing expertise to support securitization deals and can facilitate them by pooling ceding insurer clients to create a “critical mass” for securitized products, she said.

Reinsurers also can continue their traditional role, assuming ceding company risks that are not encompassed by securitized transactions.

“These core competencies make reinsurers the natural distribution channel for securitized risk,” she said.

Richard Sandor, chairman of Hedge Financial and an early proponent of securitization, noted that the concept is following predictable stages of development that have previously marked nascent markets for commodities, such as wheat, or financial products, such as collateralized mortgage obligations.

The first stage is a structural change in a market that creates a demand for capital. This happened in the insurance industry, Mr. Sandor said, in the wake of Hurricane Andrew and the Loma Prieta earthquake, when insurers recognized that huge property values had become concentrated in cat-exposed areas like California, Texas, Florida and Long Island in New York and that they were not prepared for the potential loss.

Succeeding stages in the market’s evolution led to the development of organized futures and options markets and later in a proliferation of over-the-counter markets, he said.

The test of risk securitization will come when a huge loss hits the initial group of investors in cat products. Rather than kill demand for the products, though, Mr. Sandor predicted the first mega-loss will fuel demand, as insurers seek more capital and new investors jump in to supply it.

Scientists know that five mass extinctions have occurred since our first prokaryotic ancestors appeared more than three billion years ago.

Now you can make that six.

Nobody knows precisely how many species there are in the world, but fossil evidence and other data suggest that we’re losing species at a rate more than a thousand times faster than at any time during the past sixty-five million years. Many more are at risk. Why? Stresses and strains on natural resources from too many of us. The earth’s human population has more than doubled in the last fifty years and wilt likely exceed eight billion by the year 2025,

According to Harvard biologist Edward O. Wilson, Homo sapiens is “the greatest destroyer of life since the ten-kilometer-wide meteorite that landed near Yucatan and ended the Age of Reptiles sixty-five million years ago,”

As many as 25 percent of the species on earth are likely to be extinct or endangered by the year 2025–and 75 percent by the end of the next century.

“Such losses would destroy humanity’s ability to use these organisms and their genes in any way for human benefit,” says botanist Peter Raven. “The hope that science and engineering will save us is not a hope shared by scientists and engineers,”

The Leonid Meteor Storm

Mark your calendar–November 17,1998. About every thirty years, earth passes through the densest part of the debris cloud trailing comet Tempel-Tuttle. This time around, orbiting with us are about five hundred high-priced, sensitive satellites that: we depend on for paging doctors, transacting international business, receiving TV broadcasts, using ATM machines, and pumping gas. These satellites generate $20 billion per year in worldwide business, and this November they’re going to be virtually sandblasted.

Just how intense is the Leonid cloud? Typically, in mid-November; meteors are visible at a rate of about twelve per hour, but in 1966, the last time our orbit took us through this part of the Leonid storm, meteors rained at a rate of 150,000 an hour.

The Leonid cloud is basically just dust and sand, yet these particles have a velocity sufficient to give a speck of sand the energy of a ,22-caliber bullet. As John Pike of the Federation of American Scientists puts it, “Satellites just aren’t designed to have small sticks of dynamite tossed at them.”

Several years ago, a much less intense Perseid meteor storm knocked Europe’s flagship communications satellite, Olympus, permanently out of commission,

The World’s Most Explosive Gas Tank

As many as two hundred billion more barrels of oil re* serves have just been opened to development–a 10 percent increase over the current world total, Even at today’s depressed oil prices, this represents about $4 trillion–by far the largest known undivvied chunk of wealth in the world.

The bad news is that this oil is in one of the most politically chaotic and America-unfriendly regions on earth: the tinderbox of former :Soviet republics Kazakhstan, Turkmenistan, and Azerbaijan. The region is also rife with bloody tribal rivalry, which has led some to the area a Bosnia with oil.

According to Daniel Yergin, energy expert and author of The Prize: The Epic Quest for Oil, Money and Power, “You have thousands of years of accumulated religious and ethnic tensions throughout the region, combined with large geopolitical uncertainties,”

The U.S. is already arm-wrestling with Russia over pipeline routes, and the least problematic route out is through Iran, where Uncle Sam is still known as the Great Satan.

Our Chemical Castration

Some studies have shown that male reproductive disorders and infertility are on the rise, sperm counts are down, proportions of abnormal sperm are up, and semen volumes are on the decline. If the trend continues, the researchers say, most men will be effectively sterile by the middle of the next century,

For years, scientists have been investigating the effects of certain man-made chemicals (such as dioxin, DDT, and PCBs) on humans. Some chemicals can mimic natural hormones and disrupt endocrine processes. Laboratory and wildlife studies have shown clear links between so-called environmental hormones and reproductive anomalies in animals,

“I am totally convinced that endocrine disrupters have adverse effects in animals, and therefore I’m very concerned about the potential effects on humans,” says Fred vom Saul, a developmental endocrinologist at the University of Missouri,

The Environmental Protection Agency is concerned enough to have begun considering chemicals’ effects on reproductive health when drafting federal safety guidelines, and the National Academy of Sciences has convened a committee to produce a report on the subject later this fall.

The Next Ice Age

Global warming, it turns out, is just the tip of the iceberg. Higher temperatures could actually wind up precipitating drastic worldwide cooling. As temperatures rise, weather patterns change, meaning more high-latitude rainfall. Rising temperatures also melt ice at the earth’s polar caps. Recent research has revealed evidence of a disintegrating West Antarctic Ice Sheet

All of this dumps more freshwater into the oceans, altering water density and thereby disrupting the massive North Atlantic conveyor-belt current that distributes heat to Europe. This great current, more powerful than a hundred Amazon Rivers, is a key to our temperate climates, and sometimes it shuts down–it has many times, in fact, during the last hundred thousand years. Ice-core and pollen core samples reveal that past disruptions in these currents have caused abrupt and dramatic changes in climate. These sudden changes have occurred fairly frequently–drops of 20 degrees in just a few years.

Even relatively moderate reductions in worldwide temperatures could trigger a chain of events that would lead to ice-age conditions in the Northern Hemisphere–subarctic waters chilling the southern California coast, irish green replaced by Siberian gray, fertile European fields returned to tundra. As Science warned recently, “Reykjavik would be bulldozed into the sea by the iceland Ice Cap.”

The insurance industry is still reeling from our most recent natural disasters, exemplified by the Iowa storms, the Mississippi Valley floods, Japanese Tsunamis and the Florida wildfires. It is increasingly clear, however, that catastrophic risk involves much more than such great natural disasters, the dramatic news of which flashes across the airwaves into our nation’s living rooms.

Less publicized events can be just as disastrous to individual businesses and business owners. This includes everything from fires in a distribution center to an angry employee scorching a company’s computer records; from an out-of-control truck that rams a nearby power transformer to a major embezzlement.

In this era of extraordinary claims exposure, the insurance industry is re-examining its underwriting policies and seeking alternative methods to protect itself against loss. At the same time, individual businesses are adopting formal catastrophe planning in greater numbers.

For example, many companies – sensitized to a loss in the case of their computer data systems – are now taking the next step to have a complete catastrophe plan. Until now, it was mostly large companies that recognized the need for planning ahead, even though they were perhaps better able to weather business losses than a midsize or undercapitalized company. However, all midsize companies now are quickly becoming aware of their inept, pre-loss preparation and realize they should move to a better position themselves.

A catastrophe plan identifies and quantifies the physical and financial resources necessary to maintain operations after a catastrophe. The plan will set forth the specific steps required to appropriately avoid, reduce or transfer loss exposures. As part of the process, insurance recovery will be carefully analyzed under various loss scenarios. This catastrophe planning bridges insurance industry concerns and practices with the specifics of a given business. Long-term risk planning makes businesses better consumers of insurance.

Should catastrophe strike, the insurance policy – a business owner’s most important but least-read document – does become the executive’s most critical document. It is too late, however, to assure that coverages are adequate. Without prior planning, business recovery is always difficult and sometimes impossible.

Catastrophe planning secures the type of insurance coverage required to meet the range of reconstruction and business interruption scenarios that often occur after a loss. Speed and enforcement are essential. In a competitive world with few loyalties, customers lost temporarily soon are lost permanently.

It is to your company’s benefit and peace of mind to hire your own consultant. This professional will assist in developing a catastrophe plan, which will allow you to immediately restore operations in the event of a catastrophe while having the type of insurance coverage that will reimburse all of your post-loss recovery expenses.

Having a public adjuster represent your interest is now even more necessary as the insurance industry changes and becomes more regionalized. When disaster strikes, the insurance company will send out its own team of adjusters, appraisers, forensic accountants and consultants. They will comb through the site and company records. Your claim will not be handled by your agent or broker, but by the impersonal professionals dispatched directly from the insurance company.

A public adjuster has the expertise to recover damage losses in an expeditious manner. Companies can perform admirably under trying circumstances. With the proper coverage and representation, some companies end up expanding business after a catastrophe, having so impressed both customers and competitors.

Catastrophe planning should be an ongoing process. Typically, it would be as simple as an informal checklist to determine if any significant changes are to take place. Often, paperwork is easily forgotten once a business is set into motion and begins to grow. This planning is no different from a family’s periodic reviews of its financial plan.

Catastrophe planning is also a team effort that can include risk managers, business owners, insurance brokers and agents, public adjusters and claims consultants, accountants and attorneys. It begins with contemplation of the unknown, and ends by addressing practical, everyday legal, financial, personnel and competitive issues.

Business planning is a process that sets out a specific course of action for various marketplace scenarios. A catastrophe plan is no different.

The first step in catastrophe planning is a thorough evaluation of the existing business and future business forecasts.

Insurance companies are rigidly enforcing their policies, even with longtime clients. Tough claims practices seen during the recent run of major disasters only highlight a well-established trend, where insurance companies attempt to offset competitive premiums with more restrictive interpretations of coverage.

In many instances, public adjusters or attorneys are engaged to help find ways to fit a company’s loss “into” the pre-existing insurance policy coverages. With proper catastrophe planning, the insurance policy is tailored to your potential exposures. Surprisingly, this does not necessarily mean higher insurance premiums, just a better distribution of coverages to meet your actual needs.

This process may include: purchase of additional types of insurance, such as errors and omissions liability policies; changes in rating plans or premium payment plans; elimination of unnecessary coverages; consolidation or amendment of policy limits and conditions; reconsideration of methods of valuation; and changes in practices regarding insurance and hold-harmless requirements from lessors, suppliers or other contractors.

The catastrophe plan considers both interim and long-range strategies. Factors might include whether to relocate temporarily or outsource to fill existing orders; whether multiple locations should be consolidated; whether equipment and facilities could be modernized or expanded; even whether the business should move to a new location. This is also the time to confront competitive issues that have been mounting up, such as the need to revamp products and services or make adjustments in the workforce.

Without the proper type of coverage, businesses will be exposed to unrecoverable losses, as demonstrated by the standard business insurance forms. And, without an adequate recovery plan, it is impossible to know what you are insuring against.

Consider a manufacturer with a plant that burns down. In some cases, this manufacturer may be able to arrange production and shipment from another location; or it may have sufficient inventory on hand so no potential sales are lost. An insurer might claim no income loss had occurred, as sales never stopped.

Although sales at the time of the disaster may not be lost, the plant later realizes a decrease in forecasted income or inventory. In addition, the plant incurs a reduction of efficiency to maintain operations after the disaster. This type of spending by companies to stay running after a catastrophe is not always recognized by insurance companies as a collectible loss, or by an owner as recoverable under a business interruption claim.

Companies are encouraged to establish partnership agreements that secure assistance in the event of a business interruption. It doesn’t make sense to go to a competitor when faced with contract penalties or the loss of a major client. On the other hand, when negotiated in advance from a position of mutual strength, such arrangements are increasingly successful and even welcomed within industry groups.

Business owners must understand that insurance policies do not provide complete protection, unless they are modified to meet the specific needs of the company. Unless refined, policy exclusions or limitations will prevent complete indemnification.

Consider another example: Disaster strikes; the risk manager pulls out his catastrophe plan, then calls his insurer. Coverages have been carefully tailored to a catastrophe plan, but now the risk manager must work with the insurance company’s professional adjuster from its regional headquarters. Now that a loss has actually occurred, the adjuster does not agree on the “intent” of the existing coverages. Unfamiliar with the policy, the home office is bureaucratic.

Thus, an important step in catastrophe planning is to establish, in writing, that the policies can actually be enforced as intended. This supplement, kept on file by both the policyholder and the insurer, helps bridge the gap between the specific needs of a business and the structured language of most standardized insurance policies.

Now the risk manager knows that satisfactory coverage and an action plan for recovery are in place. This helps deflect the initial emotional trauma of a loss, lessening stress during the recovery process. Although the business owner knows how to respond to the disaster, there are two major obstacles to overcome: restoring the business and the preparation of a claim in accordance with the insurance contract. The risk manager must work with the insurance company’s team of professionals to assure proper damage assessment and claim evaluation. Rarely do companies employ individuals with the expertise to match that of the insurance company’s claim specialists. Public adjusters are commonly retained by a policyholder to prepare recoverable damage claims, consult on available options or alternatives and to recover losses after the disaster.

Here are a series of questions to answer before disaster strikes:

* Where would you relocate? Can you relocate? Could you consolidate locations? How long would it take to set up a temporary facility?

* Would you need extra help or have to lay off employees? Would you work more overtime, incurring extra expenses?

* How would you replace your inventory? How quickly could you replace it? Would there be extra costs? Or is it seasonal and likely to be irreplaceable?

* How long would you be out of business? Consider that costs to operate would likely increase as overall efficiency decreases.

* How would you deal with your customers? Do you have any of their property on your site? Are you contractually obligated for delivery dates? Are there penalties for non-compliance?

* What type of advertising or promotion would be needed to maintain business?

* Could you use outside contractors to outsource production?

* Would you have any union problems at a temporary facility?

* Are your sales or services seasonal? If you missed your season, what would you do?

* Do your book values differ from your actual values on hand?