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Reinsurance or securitization: The case of natural catastrophe risk

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  • Gibson, Rajna
  • Habib, Michel A.
  • Ziegler, Alexandre

Abstract

We investigate the suitability of securitization as an alternative to reinsurance for the purpose of transferring natural catastrophe risk. We characterize the conditions under which one or the other form of risk transfer dominates using a setting in which reinsurers and traders in financial markets produce costly information about catastrophes. Such information is useful to insurers: along with the information produced by insurers themselves, it reduces insurers’ costly capital requirements. However, traders who seek to benefit from trading in financial markets may produce ‘too much’ information, thereby making risk transfer through securitization prohibitively costly.

Suggested Citation

  • Gibson, Rajna & Habib, Michel A. & Ziegler, Alexandre, 2014. "Reinsurance or securitization: The case of natural catastrophe risk," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 79-100.
  • Handle: RePEc:eee:mateco:v:53:y:2014:i:c:p:79-100 DOI: 10.1016/j.jmateco.2014.05.007
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    References listed on IDEAS

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    Cited by:

    1. Eckhard Platen & David Taylor, 2016. "Loading Pricing of Catastrophe Bonds and Other Long-Dated, Insurance-Type Contracts," Papers 1610.09875, arXiv.org.

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