After the human and financial carnage wrought by Hurricane Katrina and her sisters, would you take the same bet major insurance carriers must assume when they underwrite property coverage–that the next big hurricane won't cost a bundle more than the insurer anticipated? Evidently, equity investors in a new property catastrophe insurance company are willing to gamble against potential loss.

The novel insurance facility–called Marsh Risk Innovations, or MARI for short–is the product of a collaboration of insurance broker Marsh, financial services company Morgan Stanley and Bermuda-based insurer ACE Ltd. It marks the first time in a long time that the capital markets have been willing to fund new insurance capacity. Marsh anticipates that MARI will deliver $400 million in extra property catastrophe insurance, to be parceled out in $25 million packages to capacity-starved clients.

The need for additional property insurance capacity followed fast on the heels of the disastrous 2004 and 2005 hurricane seasons. Property catastrophe insurance rates quadrupled, but in spite of the hardening market, insurers fled property in favor of more lucrative areas, such as directors and officers liability. "In order to provide the necessary capacity as well as create a market large enough and diverse enough to absorb large losses, there has to be more capacity," says Beaumont Vance, senior risk manager at Sun Microsystems Inc. "The values of global property are increasing, the amount of business transacted is increasing, the GDP is increasing and the value of business is increasing. Any financial product that hopes to cover these must therefore also be increasing."