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Securitization, Insurance, and Reinsurance

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  • J. David Cummins
  • Philippe Trainar
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    Abstract

    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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    Bibliographic Info

    Article provided by The American Risk and Insurance Association in its journal Journal of Risk and Insurance.

    Volume (Year): 76 (2009)
    Issue (Month): 3 ()
    Pages: 463-492

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    Handle: RePEc:bla:jrinsu:v:76:y:2009:i:3:p:463-492

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    Cited by:
    1. Biffis, Enrico & Blake, David & Pitotti, Lorenzo & Sun, Ariel, 2011. "The cost of counterparty risk and collateralization in longevity swaps," MPRA Paper 35740, University Library of Munich, Germany.
    2. Lemoyne de Forges, Sabine & Bibas, Ruben & Hallegatte, Stephane, 2011. "A dynamic model of extreme risk coverage : resilience and efficiency in the global reinsurance market," Policy Research Working Paper Series 5807, The World Bank.
    3. repec:hal:wpaper:halshs-00800460 is not listed on IDEAS
    4. Alexandros-Andreas Kyrtsis, 2011. "Insurance of Techno-Organizational Ventures and Procedural Ethics: Lessons from the Deepwater Horizon Explosion," Journal of Business Ethics, Springer, vol. 103(1), pages 45-61, April.
    5. Georges Dionne, 2013. "Risk Management: History, Definition, and Critique," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 16(2), pages 147-166, 09.
    6. Hagendorff, Bjoern & Hagendorff, Jens & Keasey, Kevin & Gonzalez, Angelica, 2014. "The risk implications of insurance securitization: The case of catastrophe bonds," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 387-402.
    7. Bjoern Hagendorff & Jens Hagendorff & Kevin Keasey, 2013. "The Shareholder Wealth Effects of Insurance Securitization: Preliminary Evidence from the Catastrophe Bond Market," Journal of Financial Services Research, Springer, vol. 44(3), pages 281-301, December.

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