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The Evolving Market for Catastrophic Event Risk

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Author Info
Kenneth A. Froot

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Abstract

This paper discusses the recent changes in the market for catastrophe risk. These risks have traditionally been distributed through the insurance and reinsurance systems. However, because insurance companies tend to share relatively small amounts of their cat exposures and because insurance companies' capital is threatened by large event, these risks are now being shared partly through the capital markets. In looking to likely future developments, the paper enumerates five key ingredients that successfully structured cat instruments are likely to share: retentions should be substantial; layers of protection should not be too high; dollar amounts of risk transfer should not be too small; loss triggers should be beyond cendent control; and loss triggers should be symmetrically transparent.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7287.

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Date of creation: Aug 1999
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Handle: RePEc:nbr:nberwo:7287

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G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies

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This page was last updated on 2009-12-14.

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