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

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  • J. David Cummins
  • Mary A. Weiss

Abstract

One of the most significant economic developments of the past decade has been the convergence of the financial services industry, particularly the capital markets and (re)insurance sectors. Convergence has been driven by the increase in the frequency and severity of catastrophic risk, market inefficiencies created by (re)insurance underwriting cycles, advances in computing and communications technologies, the emergence of enterprise risk management, and other factors. These developments have led to the development of hybrid insurance/financial instruments that blend elements of financial contracts with traditional reinsurance as well as new financial instruments patterned on asset-backed securities, futures, and options that provide direct access to capital markets. This article provides a survey and overview of the hybrid and pure financial markets instruments and provides new information on the pricing and returns on contracts such as industry loss warranties and Cat bonds. 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: 493-545

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Handle: RePEc:bla:jrinsu:v:76:y:2009:i:3:p:493-545

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Cited by:
  1. Simplice A, Asongu, 2012. "African Stock Market Performance Dynamics: A Multidimensional Convergence Assessment," MPRA Paper 36055, University Library of Munich, Germany.
  2. repec:hal:ciredw:halshs-00800460 is not listed on IDEAS
  3. Gürtler, M. & Hibbeln, M. & Winkelvos, C., 2012. "The impact of the financial crisis and natural catastrophes on CAT bonds," Working Papers IF40V1, Technische Universität Braunschweig, Institute of Finance.
  4. Asongu, Simplice, 2014. "Fresh Patterns of Liberalization, Bank Return and Return Uncertainty in Africa," MPRA Paper 56813, University Library of Munich, Germany.
  5. 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.
  6. repec:hal:wpaper:halshs-00800460 is not listed on IDEAS
  7. Chen, Hua & Cummins, J. David, 2010. "Longevity bond premiums: The extreme value approach and risk cubic pricing," Insurance: Mathematics and Economics, Elsevier, vol. 46(1), pages 150-161, February.
  8. Simplice A, Asongu, 2012. "African Financial Development Dynamics: Big Time Convergence," MPRA Paper 36053, University Library of Munich, Germany.
  9. 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.
  10. Ronnie J. Phillips & David Nickerson, 2011. "Underwriting in Property-Casualty Insurance Markets: Regulation, Risk and Volatility," NFI Working Papers 2011-WP-19, Indiana State University, Scott College of Business, Networks Financial Institute.
  11. Jakob Eberl & Darko Jus, 2012. "Evaluating policies to attain the optimal exposure to nuclear risk," RSCAS Working Papers 2012/50, European University Institute.
  12. Pauline Barrieu & Henri Louberge, 2013. "Reinsurance and securitisation of life insurance risk: the impact of regulatory constraints," LSE Research Online Documents on Economics 47396, London School of Economics and Political Science, LSE Library.
  13. Eling, Martin & Pankoke, David, 2012. "Systemic Risk in the Insurance Sector – What Do We Know?," Working Papers on Finance 1222, University of St. Gallen, School of Finance.
  14. Gatzert, Nadine & Kellner, Ralf, 2011. "The influence of non-linear dependencies on the basis risk of industry loss warranties," Insurance: Mathematics and Economics, Elsevier, vol. 49(1), pages 132-144, July.
  15. Zhu, Wenge, 2011. "Ambiguity aversion and an intertemporal equilibrium model of catastrophe-linked securities pricing," Insurance: Mathematics and Economics, Elsevier, vol. 49(1), pages 38-46, July.
  16. Eberl, Jakob & Jus, Darko, 2012. "The year of the cat: Taxing nuclear risk with the help of capital markets," Energy Policy, Elsevier, vol. 51(C), pages 364-373.
  17. Villegas, Andrés M. & Medaglia, Andrés L. & Zuluaga, Luis F., 2012. "Computing bounds on the expected payoff of Alternative Risk Transfer products," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 271-281.
  18. 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.
  19. Galeotti, Marcello & Gürtler, Marc & Winkelvos, Christine, 2009. "Accuracy of premium calculation models for CAT bonds: An empirical analysis," Working Papers IF29V4, Technische Universität Braunschweig, Institute of Finance.

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