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Alternative to Insurance Risk Transfer: Creating a catastrophe bond for Romanian earthquakes

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  • Apostolos Kiohos
  • Maria Paspati

Abstract

As the severity of natural catastrophes continues to intensify, in terms of the economic, environmental and human impacts, disaster risk management is becoming increasingly significant. The limitations of the insurance and reinsurance market capacity led to the development of alternative risk transfer products. These products are designed to alleviate the risk, in whole or partly, by putting into effect securitisation mechanisms that increase liquidity. Among them, catastrophe risk bonds are designed to transfer the financial consequences of natural catastrophic events (e.g. floods, hurricanes, earthquakes etc.) from the issuers to investors. Within this context, this paper investigates the effects of earthquakes in Romania and suggests a catastrophe bond issuance that offers coverage in case of large earthquakes. Through this mechanism, Romanian governmental authorities will attain sufficient and sustainable fund liquidity for covering the financial obligations following a catastrophic earthquake.

Suggested Citation

  • Apostolos Kiohos & Maria Paspati, 2021. "Alternative to Insurance Risk Transfer: Creating a catastrophe bond for Romanian earthquakes," Bulletin of Applied Economics, Risk Market Journals, vol. 8(1), pages 1-17.
    • Handle: RePEc:rmk:rmkbae:v:8:y:2021:i:1:p:1-17
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    References listed on IDEAS

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    Cited by:

    1. Wulan Anggraeni & Sudradjat Supian & Sukono & Nurfadhlina Binti Abdul Halim, 2022. "Earthquake Catastrophe Bond Pricing Using Extreme Value Theory: A Mini-Review Approach," Mathematics, MDPI, vol. 10(22), pages 1-22, November.
    2. Riza Andrian Ibrahim & Sukono & Herlina Napitupulu & Rose Irnawaty Ibrahim, 2023. "How to Price Catastrophe Bonds for Sustainable Earthquake Funding? A Systematic Review of the Pricing Framework," Sustainability, MDPI, vol. 15(9), pages 1-19, May.

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    More about this item

    Keywords

    Alternative Risk Transfer; Natural Catastrophe; Insurance–Reinsurance; Catastrophe bond; Earthquake; Romania.;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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