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Catastrophe Insurance Risk Securitization

Author GeZhiJie
Tutor ShiJianXiang
School Zhejiang Technology and Business University
Course Finance
Keywords Catastrophic risk Catastrophe insurance risk securitiza--tion Earthquake Catastrophe bond
CLC
Type Master's thesis
Year 2013
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Since1970s, along with the increasing population density and destruction of ecological environment, in the world, catastrophe events constantly rising, which brings enormous losses as the year goes. These events that are caused by natural or human factors create the loss of both human resources and economy. To some extent, these events bring great challenge to insurance claims. It is difficult to rely solely on traditional insurance and reinsurance to deal with these events which do not meet the traditional insurance risks. In the early1900s, western countries created a new type of innovation and effective financial instrument to response to catastrophic risk, named, catastrophe risk securitization, which supplement the deficiency of traditional reinsurance catastrophe insurance risk.It reduces the risk of insurer through transferring securitization of catastrophe risk and dispersing products to the capital market. What is more, it increases the profits of investors.China has the largest number of natural disasters, but the catastrophe insurance market in China is relatively undeveloped. At present, China has not yet established the corresponding catastrophe insurance system, meanwhile, post-disaster reconstruction and Catastrophe Relief rely mainly on financial allocations, which only have limited function, and cause tremendous pressure on the governments. Chinese insurance industry due to its size, technology, and financial constraints underwriting catastrophe loss claims for less than1%of total catastrophe losses, the insurance industry is far behind the developed countries bear30%or even60%-70%of the debts. Therefore, it is extremely urgent for our country to innovate the catastrophe insurance system, and make full use of catastrophe insurance risk securitization tools to develop our catastrophe insurance market. At present, China Insurance Regulatory Commission is preparing to establish a catastrophe insurance system.This paper will analyse the current situation of natural disasters on the basis of securitization of catastrophe insurance risk. Furthermore, this paper will argue the importance, necessity as well as the feasibility to develop the securitization of catastrophe insurance risk. What is more, this paper will also examine the obstacles in the development of securitization of catastrophe insurance risk.This paper attempts to demonstrate that in our current capital, the development of the insurance market, as well as current legal environment, market and regulatory environment and other circumstances, the development of securitization of catastrophe insurance in our country should start from the typical and mature catastrophe bonds. Finally, after combining the characteristics of earthquake catastrophe, and theoretical as well as empirical analysis, this paper tries to make preliminary design of the earthquake catastrophe bonds in China.

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