Catastrophe bonds are a new type of insurance securitization and have become increasingly popular in the insurance industry throughout the 21st century. Unlike traditional reinsurance products, cat bonds are “fixed income instruments issued primarily by insurers and reinsurers as a way of passing on their exposure to potential large financial risks associated with natural catastrophes” (Ip). in the form of an insurance linked security. These securities are designed to protect insurers and reinsurers against “super” catastrophes, or events that are high severity, but low frequency of occurrence, defined as having around a 1% or 1 in 100 years probability. Cat bonds first emerged in the 1990s, after hurricane Andrew and the Northridge Earthquake in California wiped approximately USD 30 billion off balance sheets of insurers and reinsurers. Insurers and reinsurers noticed the industry’s vulnerability to such “super” catastrophes. “The potential cost of a disaster had outgrown the capacity of the insurance industry to protect against it” (Ip). Reinsurers had to increase equity levels in order to protect against a natural disaster which increased the price for catastrophe risk. Although catastrophe bonds have parameters which strictly limit the type and location of a disaster they cover, cat bonds have had a positive impact on the insurance industry because cat bonds add reinsurance capacity through the financial market, cat bonds influence the price of traditional reinsurance, and cat bonds enable regional insurance carriers to expand underwriting.
The insurance industry needed a vehicle to transfer billions of dollars of catastrophe risk to an entity capable enough to manage it. The only entity able to cope with these large risk...
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Similar to what the article states, we have seen that risk is something that can go wrong, which we are unaware until a crisis happens. Many people tend to ignore the short tails of distribution saying they don't matter because there's a low possibility that it will occur. Think back to one such “perfect storm” that happened back in ...
Business Insurance News, Analysis & Articles. Web. The Web. The Web.
The presence of systemic risk in the current United States financial system is undeniable. Systemic risks exist when the failure of one firm may topple others and destabilize the entire financial system. The firm is then "too big to fail," or perhaps more precisely, "too interconnected to fail.” The Federal Stability Oversight Council is charged with identifying systemic risks and gaps in regulation, making recommendations to regulators to address threats to financial stability, and promoting market discipline by eliminating the expectation that the US federal government will come to the assistance of firms in financial distress. Systemic risks can come through multiple forms, including counterparty risk on other financial ...
Gene understands that the story does not end with just the damages but also what it contributes to the future. It has brought with it new measures in structural development, social relationships and insurance holding. It is a major step to the lessening of the impact of future disasters.
Catastrophes impact large areas, crossing regional and often, state jurisdictional boundaries, and will require m...
Havemann, Joel. "He Financial Crisis of 2008: Year In Review 2008." Encyclopedia Britannica Online. Encyclopedia Britannica, n.d. Web. 06 May 2014.
Hazards pose risk to everyone. Our acceptance of the risks associated with hazards dictates where and how we live. As humans, we accept a certain amount of risk when choosing to live our daily lives. From time to time, a hazard becomes an emergent situation. Tornadoes in the Midwest, hurricanes along the Gulf Coast or earthquakes in California are all hazards that residents in those regions accept and live with. This paper will examine one hazard that caused a disaster requiring a response from emergency management personnel. Specifically, the hazard more closely examined here is an earthquake. With the recent twenty year anniversary covered by many media outlets, the January 17, 1994, Northridge, California earthquake to date is the most expensive earthquake in American history.
High yield bonds or "junk" bonds get their name form their characteristics. As credit ratings were developed, the credit agencies created a grading system to reflect the relative credit quality of bond issuers. The highest quality bonds are "AAA and the credit scale descends to "C", and finally to the "D" of default category. Bonds are considered to have and acceptable risk of default or investment grade and encompass "BBB" bonds and higher. Bonds "BB" and lower are called speculative grade and have a higher risk of default. Most investors were restricted to investment grade bonds, speculative bonds developed negative connotations and were not widely held investment portfolios. Mainstream investors and investment dealers did not deal in these bonds. They result in junk since few people would accept the risk o...
So far in the American history, hurricane Katrina remains to be one of the most devastating hurricanes to have ever been witnessed. Though preparation were already in place to counter its effects, the storm’s impact turned out to be one of the most unprecedented ever seen. This is even notable from the way government agencies reacted to this disaster. It brought out the inefficiencies and inadequacies of the emergency units both at the federal and state level. This is because these governments’ response standards to this disaster were far much below the threshold expected. Government efforts could not match, and hence counter, the impacts of hurricane Katrina. This led to loss of massive property and people’s lives and property. Local and Federal governments face criticism up to date because the private sector seemed more prepared to counter effects of hurricane than the government.
Rousmaniere, Peter. “Facing a tough situation.” Risk & Insurance 17.7 (June 2006): 24-25. Expanded Academic ASAP. Web. 23 March 2011.
Waugh, W. (2006). Shelter from the Storm: Repairing the National Emergency Management System after Hurricane Katrina. Michigan City: SAGE Publications.
Lindauer, J. (2011, November 24). Picking Winners When Greece Defaults. Seeking Alpha. Retrieved February 1, 2014 from http://seekingalpha.com/article/310107-picking-winners-when-greece-defaults
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...easures pertaining to the micro stability of the intermediaries can be subdivided into two categories; general rules on the stability of all business enterprises and entrepreneurial activities, such as the legally required amount of capital, borrowing limits and integrity requirements; and more specific rules due to the special nature of financial intermediation, such as risk based capital ratios, limits to portfolio investments and the regulation of off-balance activities. [White 1996] References Z Bodie, A Kane and A J Marcus. "Investments". 5th Ed. Irwin 2000. E J Elton and M J Gruber. "Modern Portfolio Theory and Investment Analysis". John Wiley 5th Edition 1995. White L., 1996, "International Regulation of Securities Markets: Competition or Harmonization?” in Lo A. (ed), The Industrial organization and Regulation of the Securities Industry, NBER, Cambridge
J. David Cummins, A. S. (1999). Changes in the Life Insurance Industry: Efficiency, Technology and Risk Management: Efficiency, Technology, and Risk Management. Springer.