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The Evolving Market for Catastrophic Event Risk

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  • Kenneth A. Froot

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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Bibliographic Info

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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Publication status: published as Froot, Kenneth. “The Evolving Market for Catastrophe Event Risk." Risk Management and Insurance Review 2, 3 (Fall 1999): 1-28.
Handle: RePEc:nbr:nberwo:7287

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Cited by:
  1. Brown, Jeffrey R. & Kroszner, Randall S. & Jenn, Brian H., 2002. "Federal Terrorism Risk Insurance," National Tax Journal, National Tax Association, vol. 55(3), pages 647-57, September.
  2. Bates, David S., 2003. "Empirical option pricing: a retrospection," Journal of Econometrics, Elsevier, vol. 116(1-2), pages 387-404.
  3. Nell, Martin & Richter, Andreas, 2004. "Catastrophic events as threats to society: Private and public risk management strategies," Working Papers on Risk and Insurance 12, University of Hamburg, Institute for Risk and Insurance.
  4. Chang, Ching-Cheng & Hsu, Wenko & Su, Ming-Daw, 2008. "Modeling Flood Perils and Flood Insurance Program in Taiwan," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6141, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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