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Financial Innovation in Property Catastrophe Reinsurance: The Convergence of Insurance and Capital Markets

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  • Chichilnisky, Graciela

Abstract

The property catastrophe reinsurance industry faces a major challenge. Since 1989, climatic volatility has produced unprecedented insured losses of $43 billion, $18 billion of which were from Hurricane Andrew alone. A surge of insurer defaults and dramatic changes in capacity and pricing have followed in their wake. Catastrophic risks must be addressed with innovative financial approaches that bring the insurance industry closer to the securities industry. This article discusses the new financial instruments that can be successfully used to hedge unknown catastrophe risks.

Suggested Citation

  • Chichilnisky, Graciela, 1996. "Financial Innovation in Property Catastrophe Reinsurance: The Convergence of Insurance and Capital Markets," MPRA Paper 8333, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:8333
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    File URL: https://mpra.ub.uni-muenchen.de/8333/1/MPRA_paper_8333.pdf
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    Citations

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    Cited by:

    1. Chichilnisky, Graciela, 1998. "The economics of global environmental risk," MPRA Paper 8812, University Library of Munich, Germany.
    2. Chichilnisky, Graciela, 2009. "The topology of fear," Journal of Mathematical Economics, Elsevier, vol. 45(12), pages 807-816, December.
    3. Chichilnisky, Graciela & Heal, Geoffrey, 1998. "Managing unknown risks: the future of global reinsurance," MPRA Paper 8820, University Library of Munich, Germany.
    4. Chichilnisky, Graciela, 1996. "The Future of Global Reinsurance," MPRA Paper 8334, University Library of Munich, Germany.

    More about this item

    Keywords

    insurance; catastrophe; financial markets; securitization; hedge; climate change; climate volatility; reinsurance; capacity; catastrophic risk; catastrophe bundles; catastrophe futures; law of large numbers; risk financing;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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