Reinsurance or securitization: The case of natural catastrophe risk

We investigate the suitability of securitization as an alternative to reinsurance for the purpose of transferring natural catastrophe risk. We characterize the conditions under which one or the other form of risk transfer dominates using a setting in which reinsurers and traders in financial markets...

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Bibliographic Details
Published inJournal of mathematical economics Vol. 53; pp. 79 - 100
Main Authors Gibson, Rajna, Habib, Michel A., Ziegler, Alexandre
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.08.2014
Elsevier Sequoia S.A
Subjects
Capital market
Capital requirements
Catastrophes
Economic models
Exchange-traded catastrophe futures and options
Futures
Insurance
Natural catastrophe risk
Natural disasters
Reinsurance
Risk management
Securities markets
Securitization
Studies
Securitization
Natural catastrophe risk
Reinsurance
Exchange-traded catastrophe futures and options
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Summary:We investigate the suitability of securitization as an alternative to reinsurance for the purpose of transferring natural catastrophe risk. We characterize the conditions under which one or the other form of risk transfer dominates using a setting in which reinsurers and traders in financial markets produce costly information about catastrophes. Such information is useful to insurers: along with the information produced by insurers themselves, it reduces insurers’ costly capital requirements. However, traders who seek to benefit from trading in financial markets may produce ‘too much’ information, thereby making risk transfer through securitization prohibitively costly.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
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ISSN:0304-4068
1873-1538
DOI:10.1016/j.jmateco.2014.05.007