Hedging Flood Losses Using Cat Bonds

Têtu Alexandre (), Van Son Lai, Soumaré Issouf () and Gendron Michel ()
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Têtu Alexandre: Financial Markets Placements, Investments, General Funds, Industrial Alliance Insurance and Financial Services Inc., Quebec City, QC, Canada
Soumaré Issouf: Department of Finance, Insurance and Real Estate, Faculty of Business Administration, Laval University, Quebec City, QC, Canada
Gendron Michel: Department of Finance, Insurance and Real Estate, Faculty of Business Administration, Laval University, Quebec City, QC, Canada

Asia-Pacific Journal of Risk and Insurance, 2015, vol. 9, issue 2, 149-184

Abstract: In this paper, we develop a methodology to model the risk of losses resulting from a natural disaster in which the intensity parameter of the non-homogeneous Poisson process has an upward trend and a seasonal component. We apply this model to losses due to floods in the Financial Assistance Program of the Government of Quebec (Canada). We use the historically observed risk premiums to assess the financial costs for the government if it had issued such instruments to hedge risk linked to floods.

Keywords: cat bond; catastrophe bond; catastrophe risk; floods; insurance; risk management; risk transfer; securitization (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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DOI: 10.1515/apjri-2014-0024

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