Reinsurance or securitization: The case of natural catastrophe risk

Rajna Gibson, Michel A. Habib and Alexandre Ziegler

Journal of Mathematical Economics, 2014, vol. 53, issue C, 79-100

Abstract: We investigate the suitability of securitization as an alternative to reinsurance for the purpose of transferring natural catastrophe risk. We characterize the conditions under which one or the other form of risk transfer dominates using a setting in which reinsurers and traders in financial markets produce costly information about catastrophes. Such information is useful to insurers: along with the information produced by insurers themselves, it reduces insurers’ costly capital requirements. However, traders who seek to benefit from trading in financial markets may produce ‘too much’ information, thereby making risk transfer through securitization prohibitively costly.

Keywords: Natural catastrophe risk; Reinsurance; Securitization; Exchange-traded catastrophe futures and options (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:53:y:2014:i:c:p:79-100

DOI: 10.1016/j.jmateco.2014.05.007

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