The Challenges of Catastrophe Risk Management: Empirical Analyses in the CAT Bond Market PDF Download

Author: Tobias Götze
Publisher: Cuvillier Verlag
ISBN: 3736963785
Category : Business & Economics
Languages : en
Pages : 194

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Book Description
Due to the increasing relevance of natural catastrophes as a significant global source of risk and the capacity constraints in primary insurance and reinsurance markets, CAT bonds have become an important instrument to manage catastrophe risks by transferring them to the capital market. In three empirical studies, this dissertation examines the challenges related to catastrophe risk management with CAT bonds. First, the factors that influence the substitution of traditional reinsurance by CAT bonds are identified. These factors consist of the insured risk layer and the extends of reinsurer default risk, basis risk, and asymmetric information. Second, the accessibility of the CAT bond market for (re)insurance companies is analyzed and the results exhibit the existence of barriers to market entry in the form of higher premiums being paid by less reputable and financially weaker CAT bond sponsors. The third empirical study shows that CAT bond sponsors are susceptible to moral hazard, but also that moral hazard can be successfully prevented by sufficient loss retention or by the use of non-indemnity CAT bonds. Altogether, this dissertation contributes to improving the understanding of the CAT bond market and the challenges of catastrophe risk management using CAT bonds.

Author: Christine Winkelvos
Publisher: Cuvillier Verlag
ISBN: 3736943180
Category : Business & Economics
Languages : de
Pages : 188

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Book Description
Die Verbriefung von Katastrophenrisiken erfolgt vorwiegend über CAT Bonds. Diese transferieren das Katastrophenrisiko von den Versicherungsmärkten auf die Finanzmärkte und führen somit zu einer Kapazitätserweiterung des Versicherungsmarktes. Für die Übernahme des Katastrophenrisikos fordern die Investoren eine Risikoprämie, die den Preis des CAT Bonds bestimmt. Ziel der vorliegenden Dissertation ist die empirische Untersuchung dieser Prämien. Zunächst wird das beste Modell zur Vorhersage von CAT Bond Prämien identifiziert. Nachdem das beste Modell identifiziert wurde, besteht ein weiteres Ziel darin, dieses Modell detailliert zu untersuchen, indem theoretische Hypothesen aus der Literatur hinsichtlich potenzieller Einflussfaktoren empirisch überprüft werden. Darüber hinaus wird untersucht, wie sich die Prämien im Katastrophenfall verhalten.

Author: Eugene N. Gurenko
Publisher: World Bank Publications
ISBN: 1904339204
Category : Banks and Banking Reform
Languages : en
Pages : 366

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Book Description
Including the latest invaluable insights into catastrophe reinsurance, this book provides you with a wealth of risk management expertise gained from many of the largest catastrophe risk transfer programmes worldwide.

Author: Kenneth A. Froot
Publisher: University of Chicago Press
ISBN: 0226266257
Category : Business & Economics
Languages : en
Pages : 490

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Book Description
Is it possible that the insurance and reinsurance industries cannot handle a major catastrophe? Ten years ago, the notion that the overall cost of a single catastrophic event might exceed $10 billion was unthinkable. With ever increasing property-casualty risks and unabated growth in hazard-prone areas, insurers and reinsurers now envision the possibility of disaster losses of $50 to $100 billion in the United States. Against this backdrop, the capitalization of the insurance and reinsurance industries has become a crucial concern. While it remains unlikely that a single event might entirely bankrupt these industries, a big catastrophe could place firms under severe stress, jeopardizing both policy holders and investors and causing profound ripple effects throughout the U.S. economy. The Financing of Catastrophe Risk assembles an impressive roster of experts from academia and industry to explore the disturbing yet realistic assumption that a large catastrophic event is inevitable. The essays offer tangible means of both reassessing and raising the level of preparedness throughout the insurance and reinsurance industries.

Author: Claudio Morana
Publisher:
ISBN:
Category :
Languages : en
Pages : 26

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Book Description
Since their introduction in the mid-1990s, the return per unit of risk or multiple on catastrophe (cat) bonds has steadily declined. This paper investigates whether this pattern is consistent with the historical evolution of natural disaster risk. Assessing the accuracy of cat bond pricing is important, since about 50% of outstanding risk capital in the cat bonds market is currently exposed to Atlantic hurricanes -a risk that climate change, among other disruptions, is expected to enhance- and pension and mutual funds in European and other OECD countries currently own about 30% of the market. In this respect, while our findings suggest that falling multiples are primarily related to the Fed's expansionary monetary stance and to portfolio shift effects, we do also find evidence of significant undervaluation of natural disaster risk in the cat bonds market. This finding, also in light of the unfailing appetite of institutional investors for such securities, casts doubts over the sanity of the market and over cat bonds as suitable investment products for risk averse investors.

Author: J. David Cummins
Publisher: World Bank Publications
ISBN: 0821377361
Category : Political Science
Languages : en
Pages : 299

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Book Description
'Catastrophe Risk Financing in Developing Countries' provides a detailed analysis of the imperfections and inefficiencies that impede the emergence of competitive catastrophe risk markets in developing countries. The book demonstrates how donors and international financial institutions can assist governments in middle- and low-income countries in promoting effective and affordable catastrophe risk financing solutions. The authors present guiding principles on how and when governments, with assistance from donors and international financial institutions, should intervene in catastrophe insurance markets. They also identify key activities to be undertaken by donors and institutions that would allow middle- and low-income countries to develop competitive and cost-effective catastrophe risk financing strategies at both the macro (government) and micro (household) levels. These principles and activities are expected to inform good practices and ensure desirable results in catastrophe insurance projects. 'Catastrophe Risk Financing in Developing Countries' offers valuable advice and guidelines to policy makers and insurance practitioners involved in the development of catastrophe insurance programs in developing countries.

Author: Nico Gysi
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
Since the insurance industry was struck by unprecedented high insurance losses caused by natural catastrophes in the early 1990s, the risk perspective of insurance and reinsurance companies regarding the handling of natural disaster risk has changed completely. The industry's ultimate desire to transfer a share of its risk to the capital markets has led to a continuous convergence of insurance and financial markets over the last two decades and the creation of a new asset class: insurance-linked securities. Catastrophe bonds have developed into the most successful instruments to help insurers and reinsurers to control their exposure to natural disaster risk and provided attractive investment options for investors. This paper provides an overview of the cat bond market's evolution, its current role and growth potential within the reinsurance market as well as a recap of previously conducted cat bond studies. The paper's focus is set on the analysis of the cat bond spread's determinants at the time of issuance. The analysis is based on a data sample of more than 300 cat bond transactions between 1997 and 2010 and was conducted using several multiple regression models, which identified the following factors as the key drivers of the cat bond issuance spread: expected loss, trigger structure, bond rating, peril type and the state of the underwriting cycle. The expected loss has the greatest impact on the spread level, with a spread to expected loss multiple of slightly over two. In contrast to findings of previous studies, indemnity trigger structures do not reward investors with higher premium spreads. Instead, the presence of an indemnity trigger structure decreases the cat bond spread by 62 bps. Ratings affect the spread level as expected. The higher the rating is, the lower is the cat bond spread. With regard to the different perils covered by cat bonds, the findings indicate that the spread level is highly sensitive to the cover.

Author: Maximilian Roth
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
As reinsurance capacity is limited, insurance companies developed mechanisms to transfer risk to financial markets. This innovation created a new asset class, called insurance-linked securities. The most prominent product within this asset class are catastrophe (cat) bonds. Cat bonds are OTC products that pay investors a recurring coupon until maturity. In turn, the cat bond reimburses its sponsor (the reinsurance company) for insurance loss on the peril underlying the bond. Once a disaster strikes, investors may lose part of the invested money, depending on the cost and trigger mechanism of the respective bond. Cat bonds are relatively new products and not well known to the majority of the population. However, issuance volumes have been growing steadily over the past decades and its growth was only been interrupted by the recent financial crisis. This paper seeks to determine and evaluate factors responsible for the cat bond issuance volume. The study covers a total of 463 transactions. It could be shown that the reinsurance cycle, corporate bond spreads (BB-rated bonds) and disposable income influences transaction volumes of cat bonds. Furthermore, a strong seasonal pattern was detected when analyzing the data. An out-of-sample forecast indicates that the developed OLS regression model performs best in times of low transaction volatility. It is the task of further research to include more variables into the model. It would be promising to study secondary cat bond market prices and their influence on new transactions; however, as cat bonds are OTC products, this data is hard to obtain.

Author: Stefan Hochrainer
Publisher: Springer Science & Business Media
ISBN: 3835094416
Category : Business & Economics
Languages : en
Pages : 213

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Book Description
Stefan Hochrainer develops a catastrophe risk management model. It illustrates which trade-offs and choices a country must make in managing economic risks due to natural disasters. Budgetary resources are allocated to pre-disaster risk management strategies to reduce the probability of financing gaps. The framework and model approach allows cross country comparisons as well as the assessment of financial vulnerability, macroeconomic risk, and risk management strategies. Three case studies demonstrate its flexibility and coherent approach.

Author: Morton Lane
Publisher: Bharat Book Bureau
ISBN: 9781899332632
Category : Insurance
Languages : en
Pages : 684

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Book Description
A ground-breaking volume that fully exposes the relatively new area of risk financing from traditional methods of insurance and provides analysis of the intersection of insurance and finance. \r\nKulp-Wright Book Award winner 2002 - Nominated "Runner-Up" by the American Risk and Insurance Association (ARIA)