This article provides an overview of how insurance and reinsurance companies and institutions can use new methods to finance extraordinary or catastrophe risk in the capital markets as well as to split or swap it. These new methods are divided into two groups: those that issue new assets (secondary financial assets) by securitisation and those that use derivatives structured products. Catastrophe or 'act of God' bonds, contingent surplus notes, exchange-traded catastrophe options, catastrophe equity puts or catastrophe swap are useful instruments for insurers and for investors. From the insurers' point of view, those financial instruments are not used to replace traditional reinsurance, but to supplement it. From the investors' perspective these forms of securitisation permit that investors use catastrophe models and exposure data to determine the rates of return they could expect from selling catastrophe options to insurers and also offer investors a new means of reducing portfolio risk through diversification.
Events that are described as 'disasters' are those that cause severe impacts on human activities. Severe impacts can be reduced, and some can be eliminated for practical purposes, through suitable strategies. The aim of this paper is to discuss different ways to facilitate a comprehensive approach from policy level through middle and down to operational management. We will further discuss how the comprehensive approach can identify which business processes should not be, or can be, interrupted, integrating business continuity into overall strategy, and describe techniques to insure continuity of critical business processes. Part of this paper's report is our research, which includes interviews with executives knowledgeable about their corporations' crisis management planning. Recent literature and curricula for emergency management professionals now emphasize mitigation and recovery. In conjunction, directives from senior management and regulatory agencies are impelling a comprehensive management approach. One logical result is that business continuity has become one of several strategies used to reduce the impacts of disasters. The authors advocate using senior management's perspective to select criteria that can identify which business processes require the business continuity strategy. They believe managers at the policy level should facilitate using the comprehensive approach by setting the criteria for the next two levels' managers to apply. The authors expand the discussion, noting 'strategy' is applied differently at each of the three management levels. The authors propose seven impact categories that can determine when to apply business continuity or another strategy. They conclude by outlining management techniques to incorporate business continuity into overall strategy.
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