Reinsurance or securitization: The case of natural catastrophe risk

Gibson, Rajna; Habib, Michel A.; Ziegler, Alexandre

doi:10.1016/j.jmateco.2014.05.007

Cited by 21 publications

(16 citation statements)

References 64 publications

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“…In this regard, in the last two decades, different financial instruments have been developed to enable more effective management of the catastrophe risk and to overcome some of the limitations of the traditional insurance/reinsurance framework outlined in the previous section. Among these financial instruments, catastrophe bonds (cat bonds hereafter) have gained a predominant position (on the suitability of cat bonds as an alternative to reinsurance for the purpose of transferring natural catastrophe risk, see (Gibson, Habib, & Ziegler, 2014). 2…”

Section: Catastrophe Bondsmentioning

confidence: 99%

Are catastrophe bonds effective financial instruments in the transport and infrastructure industries? Evidence from international financial markets

Pizzutilo¹,

Venezia²

2018

BEH

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We analyse the effectiveness of catastrophe bonds for the financial management of catastrophic risk in the transport and infrastructure industries. We illustrate how these financial instruments are becoming a valuable tool for non-financial firms in the risk management of catastrophic events, supplementing the traditional insurance/reinsurance channel, especially during times of constraints in the insurance industry. We also review cat bond issues sponsored by infrastructure and transport companies, highlighting the usefulness of these structured financial instruments in the management of the catastrophe exposure in these industries. Policy indications are finally given.

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Section: Catastrophe Bondsmentioning

confidence: 99%

Are catastrophe bonds effective financial instruments in the transport and infrastructure industries? Evidence from international financial markets

Pizzutilo¹,

Venezia²

2018

BEH

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“…† In Gibson, Habib and Ziegler (2011), the discount which insurers with high loss uncertainty offer serves as compensation to uninformed traders for the losses they are likely to experience when dealing with informed market traders. The discount also equals the information production costs of informed market traders.…”

Section: Theory and Literature: Do Companies Benefit From Issuing Catmentioning

confidence: 99%

“…We expect LOSSVOL to have a negative effect on abnormal returns, meaning that issuers with more stable loss ratios will benefit more from issuing Cat bonds as insurance securitization offers them relatively greater cost savings compared with reinsurance coverage (cf. Gibson, Habib and Ziegler 2011).…”

Section: Issuer Characteristicsmentioning

confidence: 99%

The Shareholder Wealth Effects of Insurance Securitization: Preliminary Evidence from the Catastrophe Bond Market

Hagendorff¹,

Hagendorff

Keasey

2012

SSRN Journal

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Insurance securitization has long been hailed as an important tool to increase the underwriting capacity for companies exposed to catastrophe-related risks. However, global volumes of insurance securitization have remained surprisingly low to date which raises questions over its benefits. In this paper, we examine changes in the market value of insurance and reinsurance firms which announce their engagement in insurance securitization by issuing catastrophe (Cat) bonds. Consistent with the hitherto underwhelming contribution of Cat bonds to global catastrophe coverage, we do not find evidence that Cat bonds lead to strong wealth gains for shareholders in the issuing firm. More importantly, we report large variations in the distribution of wealth effects in response to the issue announcement. We show that the wealth effects for shareholders in firms which issue Cat bonds appear to be driven by explanations according to which Cat bonds offer cost savings relative to other forms of catastrophe risk management (and less by the potential of Cat bonds to hedge catastrophe risk). Thus, abnormal returns are particularly large for issues by firms which face low levels of loss uncertainty (which reduces the information acquisition costs in financial markets) as well as for issues during periods when prices for catastrophe coverage (including Cat bonds) are low.JEL codes: G20, G22, G32

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“…The uncertainty in hazard propagates in the risk assessment, being transformed into tsunami impact parameters (i.e., economic loss). Catastrophe risk assessment is essential for achieving effective risk management to deal with the low-probability high-consequence catastrophes in the global insurance-reinsurance system by transferring financial risks among stakeholders [1][2][3]. Tsunamis are one of the low-probability high-consequence natural disasters, and thus the improved accuracy of tsunami loss estimation can help insurance/re-insurance underwriters to better understand their exposure to catastrophe risks and is beneficial for profitable design of risk transfer instruments [4][5][6].…”

Section: Introductionmentioning

confidence: 99%

“…Due to different geographical features and tsunami propagation path, tsunami hazard varies within inundated areas significantly. Multiple intensity measures (IM) that describe the extent of tsunami inundation have been proposed, including inundation depth, flow velocity, and momentum flux [3,7,8]. Although inundation depth is the most observable intensity measure in post-tsunami situations and the most common IM in the tsunami risk assessment [9][10][11][12], it cannot be taken as the sole representation of tsunami impact on structures, especially for damage caused by hydrodynamic and debris impact forces that are mainly determined by flow velocity [13,14].…”

Section: Introductionmentioning

confidence: 99%

Influence of Flow Velocity on Tsunami Loss Estimation

2017

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Inundation depth is commonly used as an intensity measure in tsunami fragility analysis. However, inundation depth cannot be taken as the sole representation of tsunami impact on structures, especially when structural damage is caused by hydrodynamic and debris impact forces that are mainly determined by flow velocity. To reflect the influence of flow velocity in addition to inundation depth in tsunami risk assessment, a tsunami loss estimation method that adopts both inundation depth and flow velocity (i.e., bivariate intensity measures) in evaluating tsunami damage is developed. To consider a wide range of possible tsunami inundation scenarios, Monte Carlo-based tsunami simulations are performed using stochastic earthquake slip distributions derived from a spectral synthesis method and probabilistic scaling relationships of earthquake source parameters. By focusing on Sendai (plain coast) and Onagawa (ria coast) in the Miyagi Prefecture of Japan in a case study, the stochastic tsunami loss is evaluated by total economic loss and its spatial distribution at different scales. The results indicate that tsunami loss prediction is highly sensitive to modelling resolution and inclusion of flow velocity for buildings located less than 1 km from the sea for Sendai and Onagawa of Miyagi Prefecture.

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Reinsurance or securitization: The case of natural catastrophe risk

Cited by 21 publications

References 64 publications

Are catastrophe bonds effective financial instruments in the transport and infrastructure industries? Evidence from international financial markets

Are catastrophe bonds effective financial instruments in the transport and infrastructure industries? Evidence from international financial markets

The Shareholder Wealth Effects of Insurance Securitization: Preliminary Evidence from the Catastrophe Bond Market

Influence of Flow Velocity on Tsunami Loss Estimation

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