Can insurers pay for the “big one”? Measuring the capacity of the insurance market to respond to catastrophic losses

Cummins, J. David; Doherty, Neil A.; Lo, Anita

doi:10.1016/s0378-4266(01)00234-5

Cited by 156 publications

(114 citation statements)

References 9 publications

Supporting

Mentioning

110

Contrasting

Unclassified

Order By: Relevance

“…Reinsurance contracts -that is, insurance protection for insurershave traditionally been used to share catastrophic risk within the insurance industry. Lately, however, the cost of large natural hazards has become so large that alternative capital market products, such as cat bonds, have become increasingly popular to offset very high losses (see Cummins et al, 2002;Albertini and Barrieu, 2009). That being said, reinsurance (i.e.…”

Section: Motivationmentioning

confidence: 99%

Insuring catastrophes and the role of governments

Boyer¹,

Nyce

2013

Nat. Hazards Earth Syst. Sci.

View full text Add to dashboard Cite

In this paper we model the cost of providing insurance coverage against natural and man-made hazards. We propose an insurance market model that explains (1) the use of reinsurance to help finance the cost of catastrophic events and (2) the implicit (or explicit) presence of government entities acting as (re)insurers of last resort. Using an economic model, we show how insurance programmes should be designed to cover the losses due to a possible catastrophic natural hazard. Our results show that the optimal structure of a reinsurance programme minimizes the cost of offering insurance protection. We also show how government intervention can reduce the cost of insurance against natural catastrophes and increase policyholders' welfare. Our paper therefore offers public policy implications as to the role and presence of government as an insurer of last resort and the minimum insurance premium necessary to cover the cost of catastrophic events

show abstract

Section: Motivationmentioning

confidence: 99%

Insuring catastrophes and the role of governments

Boyer¹,

Nyce

2013

Nat. Hazards Earth Syst. Sci.

View full text Add to dashboard Cite

show abstract

“…In various papers capital market concepts are applied to insurance pricing, such as the Capital Asset Pricing Model (see Hill, 1979;Fairley, 1979;Cummins et al, 2002), the Arbitrage Pricing Theory (see Kraus and Ross, 1982) or corporate debt models (see Merton, 1974;Cummins and Danzon, 1997;Doherty and Garven, 1986). Doherty and Garven (1995) combined the idea of present value and capital constraint models.…”

Section: Some Remarks On Insurance Market Capacitymentioning

confidence: 99%

Alternative solutions for public and private catastrophe funding in Austria

Gruber

2008

Nat. Hazards Earth Syst. Sci.

View full text Add to dashboard Cite

Abstract. The impacts of natural hazards as well as their frequency of occurrence during the last decades have increased decisively. Therefore, the public as well as the private sector are expected to react to this development by providing sufficient funds, in particular for the improvement of protection measures and an enhanced funding of damage compensation for affected private individuals, corporate and public entities.From the public stance, the establishment of an appropriate regulatory environment seems to be indispensable. Structural and legal changes should, on the one hand, renew and improve the current distribution system of public catastrophe funds as well as the profitable investment of these financial resources, and on the other hand, facilitate the application of alternative mechanisms provided by the capital and insurance markets.In particular, capital markets have developed alternative risk transfer and financing mechanisms, such as captive insurance companies, risk pooling, contingent capital solutions, multi-trigger products and insurance securitisation for hard insurance market phases. These instruments have already been applied to catastrophic (re-)insurance in other countries (mainly the US and off-shore domiciles), and may contribute positively to the insurability of extreme weather events in Austria by enhancing financial capacities. Not only private individuals and corporate entities may use alternative mechanisms in order to retain, thus, to finance certain risks, but also public institutions.This contribution aims at analysing potential solutions for an improved risk management of natural hazards in the private and the public sector by considering alternative mechanisms of the capital and insurance markets. Also the establishment of public-private-partnerships, which may contribute to a more efficient cat funding system in Austria, is considered.

show abstract

“…41 Putting together these alternative risk financing programmes, however, can be costly since it 39 These are immediately accounted for under standard accounting principles. 40 Jaffee and Russell (1997), Punter (2000), and Cummins et al (2002). 41 Swiss Re (2001 42 Risk is now a traded commodity stripped from the asset value and offered separately in modern capital markets.…”

Section: Securitisation Of Insurance Risk Via Capital Marketsmentioning

confidence: 99%

The Theory of Catastrophe Risk Financing: A Look at the Instruments that Might Transform the Insurance Industry

Mutenga

Staikouras

2007

Geneva Pap Risk Insur Issues Pract

View full text Add to dashboard Cite

The current study reviews the risk financing techniques employed in the insurance markets and looks at the changing field of the risk management arena. The overarching view is that apart from the traditional channels of financing risk, alternative routes should be explored. The latter is strengthened with the surfacing of off-balance sheet instruments in modern financial markets. The paper extends the discussion to the layered risk financing approach and reinforces its importance. That is, cash flow engineering instruments are employed to match different segments of the loss distributions. The role of insurance risk capital to assume extreme losses is further discussed, while reinsurance still remains a form of capital restructuring. Taken all together, the intention is that risk financing should be able to release assets committed to liabilities, and should reduce the cost of risk capital in sponsoring all-purpose equity. Finally, risk management platforms are redefined, while the securitisation of insurance risk is explored along with its effectiveness and possible caveats.

show abstract

Can insurers pay for the “big one”? Measuring the capacity of the insurance market to respond to catastrophic losses

Cited by 156 publications

References 9 publications

Insuring catastrophes and the role of governments

Insuring catastrophes and the role of governments

Alternative solutions for public and private catastrophe funding in Austria

The Theory of Catastrophe Risk Financing: A Look at the Instruments that Might Transform the Insurance Industry

Contact Info

Product

Resources

About