On the market price of catastrophic insurance risk: empirical evidence from catastrophe bonds
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| Format: | Thesis Book |
| Language: | German |
| Published: |
2002
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| Subjects: | |
| Online Access: | Inhaltsverzeichnis |
| Physical Description: | XVI, 118 S. graph. Darst. |
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| 245 | 1 | 0 | |a On the market price of catastrophic insurance risk |b empirical evidence from catastrophe bonds |c Angelika Schöchlin |
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| 502 | |a St. Gallen, Univ., Diss., 2002 | ||
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Record in the Search Index
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| adam_text | Table of contents
1 introduction 1
1.1 Insurance linked securities 1
1.2 Overview 4
1.3 Structure 4
2 CAT BONDS AS A MEANS TO SECURITIZE INSURANCE RISK 7
2.1 RISK TRANSFER AND CONVERGENCE 8
2.2 (RE)lNSURANCE MARKETS 10
2.2.1 The market for reinsurance risk 10
2.2.2 Characteristics of reinsurance markets 12
2.3 Motivation for securitization of insurance risk 16
2.3.1 Capital structure decisions 16
2.3.2 Why should insurers and reinsurers engage in securitization? 18
2.4 Catastrophe Bonds as an investment 19
2.4.1 Generalized Cat Bond structure 19
2.4.2 Investing in insurance linked risk 21
2.4.3 Who buys Cat Bonds? 23
2.5 The market for Catastrophe Bonds 27
2.5.1 Recent developments 27
2.6 Moral hazard, adverse selection and the mitigation decision 30
2.6.1 Moral hazard and adverse selection 30
2.6.2 The mitigation decision 31
2.6.3 Controlling moral hazard 32
2.7 Design of Catastrophe Bonds 35
2.7.1 The trade off decision 35
2.7.2 Trends in trigger, structure and underlying risk 36
2.7.3 Success and failure of instruments for securitization 37
2.8 Summary remarks 40
2.8.1 Outlook 40
2.9 Summary 41
vii
3 PRICING CONSIDERATIONS AND MODELS 43
3.1 Actuarial vs. Finance approaches 44
3.1.1 General equilibrium vs. partial equilibrium (vs. arbitrage) 44
3.1.2 Some basic considerations of pricing in Finance 45
3.1.3 Some basic considerations of insurance pricing 46
3.2 Actuarial models 49
3.2.1 The ruin problem 49
3.2.2 Actuarial approaches to the pricing of CBOT instruments 50
3.3 Partial equilibrium models 52
3.3.1 No arbitrage approach 52
3.3.2 Partial equilibrium in an endowment economy 54
3.4 Approaches suggested by practitioners 55
3.4.1 Morgan Stanley (1995) 56
3.4.2 Goldman Sachs (1998) 57
3.5 Key Issues with regard to pricing Cat Bonds 58
3.5.1 The rating of Cat Bonds 58
3.5.2 Model and data 60
3.5.3 Duration 62
3.5.4 Time series properties 62
3.6 Summary 63
4 ON THE MARKET PRICE OF CATASTROPHIC INSURANCE RISK 65
4.1 Introduction 65
4.2 Some preliminary thoughts 66
4.2.1 Are insurance markets incomplete? 66
4.2.2 Is insurance risk diversifiable? 68
4.3 Modelling Cat risk 71
4.3.1 Adapting credit risk models 71
4.3.2 Model set up and assumptions 73
4.4 Data sample and input 77
4.4.1 Description of data sample 77
4.4.2 Model input 81
viii
4.5 The market price of catastrophic insurance risk 88
4.5.1 Estimating n 88
4.5.2 Interpreting n 90
4.5.3 Analysingfi(b,t) 91
4.6 Summary of findings 99
5 closing remarks 101
5.1 Summary 101
5.2 Outlook 102
appendix 103
A. Unsuccessful Cat Bond Offerings 103
B. The forty most costly insurance losses 1970 2000 104
C. Results of Market Price of Risk Regression excluding Maturities below
0.5 years 107
REFERENCES 109
ix
List of tables
Table 1: Issuance volume in rating categories 29
Table 2: Cat Bonds in the sample 79
Table 3: Coupon over Libor in basis points for Cat Bonds in sample 80
Table 4: Default probability and recovery rate 87
Table 5: Regression results 94
xi
List of figures
Figure 1: Insured losses 1970 2000 1
Figure 2: Types of insurance linked securities 2
Figure 3: Monthly trading volume of PCS options 3
Figure 4: Concentration of reinsurance market volume 11
Figure 5: Key players in the non life reinsurance market 11
Figure 6: Insured natural catastrophes and catastrophe prices 14
Figure 7: Cat Bond at inception and prior to risk event 20
Figure 8: Cat Bond at risk event 20
Figure 9: End of maturity payment 21
Figure 10: Increasing importance of investment results 22
Figure 11: Cat Bond yields versus BB corporate yields 23
Figure 12: Risk capital distribution by type of investor 25
Figure 13: Risk capital distribution by geographic location 26
Figure 14: Volume and number of insurance linked securitizations 28
Figure 15: Exposure period of Cat Bonds 30
Figure 16: Pay off diagram for reinsurance layer 33
Figure 17: Structure of Cat Bond replicating XOL treaty 34
Figure 18: The design trade off 35
Figure 19: Issuance volume split into single vs. multiple risk structures 37
Figure 20: Models in Finance 44
xiii
Figure 21: Realization of the risk process for the (reinsurer s capital 49
Figure 22: Realization of jump diffusion process 52
Figure 23: Cat Bond as defaultable security in a three period model 56
Figure 24: Cat Bond as defaultable security in a one period model 57
Figure 25: Cat Bond as defaultable security in « one period model 74
Figure 26: Components of the instantaneous forward curve in the Ne.son/Siegel model .83
Fi8^2giAra:absolute difference between i—¦« «** »*
84
Figure 28: Estimated yield curve and observed data for March 9, 2000 85
Figure 29: Risky zero coupon yields for all observations 86
Figure 30: Average error for varying^ 89
Figure 31: Relative error per observation vs. maturity for^i.P 90
Figure 32:Average error per day for the observation period for^5.9 90
Figure 33: n(b,t) against maturity Figure 34: Histogram of u(b t)
92
Figure 35: Actual and fitted values of regression ^ure 36: ^ for bonds in samp,e ^ ^^ ^ (^~^
xiv
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| geographic_facet | USA |
| id | DE-604.BV017082091 |
| illustrated | Illustrated |
| indexdate | 2024-07-09T19:13:35Z |
| institution | BVB |
| language | German |
| oai_aleph_id | oai:aleph.bib-bvb.de:BVB01-010305852 |
| oclc_num | 52263255 |
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| physical | XVI, 118 S. graph. Darst. |
| publishDate | 2002 |
| publishDateSearch | 2002 |
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| spelling | Schöchlin, Angelika Verfasser aut On the market price of catastrophic insurance risk empirical evidence from catastrophe bonds Angelika Schöchlin 2002 XVI, 118 S. graph. Darst. txt rdacontent n rdamedia nc rdacarrier St. Gallen, Univ., Diss., 2002 Anleihe (DE-588)4002107-5 gnd rswk-swf Katastrophenrisiko (DE-588)4202680-5 gnd rswk-swf Risikoverteilung (DE-588)4138417-9 gnd rswk-swf Securitization (DE-588)4140657-6 gnd rswk-swf USA (DE-588)4078704-7 gnd rswk-swf (DE-588)4113937-9 Hochschulschrift gnd-content USA (DE-588)4078704-7 g Katastrophenrisiko (DE-588)4202680-5 s Securitization (DE-588)4140657-6 s Risikoverteilung (DE-588)4138417-9 s Anleihe (DE-588)4002107-5 s DE-604 HBZ Datenaustausch application/pdf http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=010305852&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA Inhaltsverzeichnis |
| spellingShingle | Schöchlin, Angelika On the market price of catastrophic insurance risk empirical evidence from catastrophe bonds Anleihe (DE-588)4002107-5 gnd Katastrophenrisiko (DE-588)4202680-5 gnd Risikoverteilung (DE-588)4138417-9 gnd Securitization (DE-588)4140657-6 gnd |
| subject_GND | (DE-588)4002107-5 (DE-588)4202680-5 (DE-588)4138417-9 (DE-588)4140657-6 (DE-588)4078704-7 (DE-588)4113937-9 |
| title | On the market price of catastrophic insurance risk empirical evidence from catastrophe bonds |
| title_auth | On the market price of catastrophic insurance risk empirical evidence from catastrophe bonds |
| title_exact_search | On the market price of catastrophic insurance risk empirical evidence from catastrophe bonds |
| title_full | On the market price of catastrophic insurance risk empirical evidence from catastrophe bonds Angelika Schöchlin |
| title_fullStr | On the market price of catastrophic insurance risk empirical evidence from catastrophe bonds Angelika Schöchlin |
| title_full_unstemmed | On the market price of catastrophic insurance risk empirical evidence from catastrophe bonds Angelika Schöchlin |
| title_short | On the market price of catastrophic insurance risk |
| title_sort | on the market price of catastrophic insurance risk empirical evidence from catastrophe bonds |
| title_sub | empirical evidence from catastrophe bonds |
| topic | Anleihe (DE-588)4002107-5 gnd Katastrophenrisiko (DE-588)4202680-5 gnd Risikoverteilung (DE-588)4138417-9 gnd Securitization (DE-588)4140657-6 gnd |
| topic_facet | Anleihe Katastrophenrisiko Risikoverteilung Securitization USA Hochschulschrift |
| url | http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=010305852&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA |
| work_keys_str_mv | AT schochlinangelika onthemarketpriceofcatastrophicinsuranceriskempiricalevidencefromcatastrophebonds |