I'm fully aware of how insurance works and not questioning it a bit. I'm asking you to think creatively, we're a couple steps beyond your typical underwriter's ability to think here, not a couple steps behind.
When a disaster happens, some entities benefits monetarily. If, hypothetically, there was one car company in the world and one reinsurance company in the world, the insurance company could buy calls on the car company stock and when a hundred thousand cars get wiped out by flooding the car company sells 100,000 new cars and their stock goes up so the call goes up so the insurance company laid off some of the risk. Obviously the car company might also coincidentally at the same time suffer from a diesel cheating scandal and the stock doesn't go up, or the leverage of the calls doesn't match the amount of the insurance loss, or there are more than one car company and more insurance company in the world...I get that it's a difficult and imperfect hedge which is probably why it isn't commonplace. That and the fact that insurance types are generally some of the least creative people on the planet and when confronted with an idea outside the norm default to the idea that the person who posed the idea must be a moron who somehow thinks they are robbed if they pay insurance but don't make a claim. My point is simply to answer the question of if it's possible to hedge any of the risk of the final reinsurer, which you asserted is categorically impossible. I don't think a categorical no is the correct answer, that's all. I'd say it's hard and you may not be able to hedge it all, but there certainly are assets that are negatively correlated to insurance risk, and perhaps some modern portfolio theory would benefit the insurance industry as it has the finance industry.
