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References (1)
-
R. Litzenberger, D. Beaglehole, Craig Reynolds (1996)
Assessing Catastrophe Reinsurance-Linked Securities as a New Asset Class, 23
- Publisher
- Wiley
- Copyright
- Copyright © 1997 Wiley Subscription Services, Inc., A Wiley Company
- ISSN
- 1078-1196
- eISSN
- 1745-6622
- DOI
- 10.1111/j.1745-6622.1997.tb00148.x
- Publisher site
- See Article on Publisher Site
Abstract
The number and severity of natural catastrophes has increased dramatically over the last decade. As a result, there is now a shortage of capacity in the property catastrophe insurance industry in the U.S. This article discusses how insurance derivatives, particularly the Chicago Board of Trade's catastrophe options contracts, represent a possible solution to this problem. These new financial instruments enable the capital markets to provide the insurance industry with the reinsurance capacity it needs. The capital markets are willing to perform this role because of the new asset class characteristics of securitized insurance risk: positive excess returns and diversification benefits. The article also demonstrates how insurance companies can use insurance derivatives such as catastrophe options and catastrophe‐linked bonds as effective, low‐cost risk management tools. In reviewing the performance of the catastrophe contracts to date, the authors report promising signs of growth and liquidity in these markets.
Journal
Journal of Applied Corporate Finance – Wiley
Published: Sep 1, 1997