Convergence of Insurance and Financial Markets: Hybrid and Securitized Risk Transfer Solutions

Cummins, J. David; Weiss, Mary A.

doi:10.2139/ssrn.1260399

Cited by 57 publications

(95 citation statements)

References 83 publications

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“…Another attraction of ILS to investors is their relatively low correlation with traditional securities such as stocks and bonds and also with most classes of asset-backed securities. Although ILS are not truly zero beta, as claimed by early researchers such as Litzenberger, Beaglehole, and Reynolds (1996), available evidence indicates that they do have low correlations with most other asset classes (Cummins and Weiss, 2009). Thus, ILS will remain a valuable source of diversification for investors.…”

Section: Advantages Of Ils To Investorsmentioning

confidence: 91%

“…However, beginning in 2001, bond premiums declined sharply and were trading in ratios of about 2.3 on average prior to Hurricane Katrina in 2005. Although spreads increased following Katrina, they returned to about 3.0 by early 2008 (Cummins and Weiss, 2009). Based on an analysis over the period 1997 through the first quarter of 2008, Lane and Mahul (2008) find ratios of long-term bond premiums to expected losses of 2.69, unadjusted for the reinsurance market cycle, and 2.33, adjusted for the cycle.…”

Section: Securitizationmentioning

confidence: 99%

“…Thus, reinsurers that face relatively high costs of external funds and hold relatively low internal capital will have higher prices than firms with lower costs of capital and higher internal funds. This helps to explain the well-documented swings in reinsurance prices and supply of coverage over the underwriting cycle (Cummins and Weiss, 2009). That is, when reinsurers sustain a capital shock due to a large catastrophe or unusual investment loss, their effective risk aversion rises, leading to higher prices for reinsurance policies that are correlated with existing projects or increase return asymmetries.…”

Section: Reinsurancementioning

confidence: 99%

“…11 The investor base for cat bonds has become very broad and includes hedge funds, dedicated cat mutual funds, high-wealth individuals, and financial institutions. See Cummins and Weiss (2009). cat bond investor can create "homemade" portfolio diversification by investing in a wide range of cat bonds covering other specifically defined insurable risks and also investing in stocks and bonds covering other types of non-insurance-linked risks. Dedicated mutual funds focusing on cat bonds have been created precisely to assist the investor in diversification.…”

Section: Securitizationmentioning

confidence: 99%

“…Much has been written in the prior literature about the advantages of ILS to investors, going back to early papers such as Litzenberger, Beaglehole, and Reynolds (1996) and extending to more recent works, including Swiss Re (2006), Albertini and Barrieu (2009), and Cummins and Weiss (2009). Consequently, our discussion will be brief and focus mainly on points not covered extensively by prior researchers.…”

Section: Advantages Of Ils To Investorsmentioning

confidence: 99%

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Securitization, Insurance, and Reinsurance

Cummins

Trainar²

2009

J of Risk & Insurance

Self Cite

114

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This article considers strengths and weaknesses of reinsurance and securitization in managing insurable risks. Traditional reinsurance operates efficiently in managing relatively small, uncorrelated risks and in facilitating efficient information sharing between cedants and reinsurers. However, when the magnitude of potential losses and the correlation of risks increase, the efficiency of the reinsurance model breaks down, and the cost of capital may become uneconomical. At this juncture, securitization has a role to play by passing the risks along to broader capital markets. Securitization also serves as a complement for reinsurance in other ways such as facilitating regulatory arbitrage and collateralizing low-frequency risks. Copyright (c) The Journal of Risk and Insurance, 2009.

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Section: Advantages Of Ils To Investorsmentioning

confidence: 91%

Section: Securitizationmentioning

confidence: 99%

Section: Reinsurancementioning

confidence: 99%

Section: Securitizationmentioning

confidence: 99%

Section: Advantages Of Ils To Investorsmentioning

confidence: 99%

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Securitization, Insurance, and Reinsurance

Cummins

Trainar²

2009

J of Risk & Insurance

Self Cite

114

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Securitization: A Financing Vehicle for All Seasons?

Buchanan

2015

J Bus Ethics

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Securitization: A Financing Vehicle for All Seasons? ''A Treasury spokesman said that while securitization had made credit more widely available, breaking the direct link between borrower and lender "had led to a general erosion of lending standards, resulting in a serious market failure that fed the housing boom". June 16, 2009 Financial Times "Securitization, a dirty word these days, must play a greater role. This whole business has a tarnished brand, post-crisis, but efforts are under way to address this". April 23, 2013 Financial Times 1 "Securitization… a financing vehicle for all seasons"

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Determinants of the cat bond spread at issuance

Braun

2012

ZVersWiss

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The contribution at hand is a short summary of a working paper presented by Alexander Braun at the annual meeting of the German Insurance Science Association (DVfVW) in Hannover in March 2012. This working paper contains empirical evidence from the primary market for cat bonds, which provides new insights concerning the prevailing pricing practice of these instruments. For this purpose, transactional information from a multitude of sources has been collected and cross-checked in order to compile a data set comprising virtually all cat bond tranches that were issued between 1997 and 2011. In order to identify the main determinants of the cat bond spread at issuance, a series of OLS regressions with robust standard errors is run. The respective results indicate that, apart from the expected loss, the covered territory, the sponsor, the reinsurance cycle, and the spreads on comparably rated corporate bonds exhibit a significant impact. Based on these findings, a multifactor pricing model for cat bonds in the primary market is then proposed. This model is applicable across all considered territories and perils, exhibits a stable fit with regard to different subsamples used for calibration, and achieves a higher in-sample and outof-sample accuracy than several competing specifications that have been introduced in earlier work. Zusammenfassung Der vorliegende Beitrag stellt eine kurze Zusammenfassung eines Arbeitspapiers dar, das von Alexander Braun im März 2012 auf der Jahrestagung des Deutschen Vereins für Versicherungswissenschaft e. V. (DVfVW) in Hannover präsentiert wurde. Dieses Arbeitspapier beinhaltet empirische Evidenz aus dem Pri-This contribution summarizes a presentation of a working paper given by the author at the annual meeting of the German Insurance Science Association (DVfVW) in Hannover in March 2012. The full working paper (see Braun, 2011), including all tables and figures, can be found at www.ivw.unisg.ch.

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Convergence of Insurance and Financial Markets: Hybrid and Securitized Risk Transfer Solutions

Cited by 57 publications

References 83 publications

Securitization, Insurance, and Reinsurance

Securitization, Insurance, and Reinsurance

Securitization: A Financing Vehicle for All Seasons?

Determinants of the cat bond spread at issuance

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