What Drives Insurers’ Demand for Cat Bond Investments? Evidence from a Pan-European Survey

Alexander Braun, Katja Müller and Hato Schmeiser
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Alexander Braun: Institute of Insurance Economics, University of St. Gallen, Kirchlistrasse 2, CH-9010 St. Gallen, Schweiz. E-mails: alexander.braun@unisg.ch; katja.mueller@unisg.ch; hato.schmeiser@unisg.ch
Katja Müller: Institute of Insurance Economics, University of St. Gallen, Kirchlistrasse 2, CH-9010 St. Gallen, Schweiz. E-mails: alexander.braun@unisg.ch; katja.mueller@unisg.ch; hato.schmeiser@unisg.ch
Hato Schmeiser: Institute of Insurance Economics, University of St. Gallen, Kirchlistrasse 2, CH-9010 St. Gallen, Schweiz. E-mails: alexander.braun@unisg.ch; katja.mueller@unisg.ch; hato.schmeiser@unisg.ch

The Geneva Papers on Risk and Insurance - Issues and Practice, 2013, vol. 38, issue 3, 580-611

Abstract: Although catastrophe bonds are continuing to gain importance in today's risk transfer and capital markets, little is known about the decision-making processes that drive the demand for this aspiring asset class. In the article at hand, we focus on one segment of the investor community. Our research goal is to identify major determinants of the cat bond investment decision of insurance and reinsurance companies. For this purpose, we have conducted a comprehensive survey among senior executives in the European insurance industry. Evaluating the resulting data set by means of exploratory factor analysis and logistic regression methodology, we are able to show that the expertise and experience with regard to cat bonds, the perceived fit of the instrument with the prevailing asset and liability management strategy, as well as the applicable regulatory regime are significant drivers of an insurer's propensity to invest. These statistical findings are supported by further qualitative survey results and additional information from structured interviews with the managers of four large dedicated cat bond funds.

Date: 2013
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