Structuring Catastrophe Bonds: A Functionalist Perspective

John Schwolsky and Matthew Stern

Chapter Chapter 19 in Global Perspectives on Insurance Today, 2010, pp 245-260 from Palgrave Macmillan

Abstract: Abstract Developed in the mid-1990s as a way to tap additional retrocessional capacity, catastrophe bonds combine aspects of both the reinsurance and capital markets.1 While this dual nature often gives rise to advantageous pricing opportunities for companies looking to reduce their property and casualty (P&C) risk, it also presents several structural challenges resulting from the different, and sometimes incongruous, manner in which the reinsurance and capital markets operate. In particular, the counterparty relationship for securities offerings is fundamentally more diffuse and passive than traditional reinsurance. Consequently, catastrophe bonds are more susceptible to collective action problems, such as inherent difficulties policing loss development and monitoring collateral stability. In addition, capital markets transactions typically require a greater degree of loss transparency and standardization in order to enhance liquidity, something that is generally not a concern for traditional reinsurance.2

Keywords: Capital Market; Risk Transfer; Basis Risk; Debt Security; Counterparty Risk (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-11737-2_19

Ordering information: This item can be ordered from
http://www.palgrave.com/9780230117372

DOI: 10.1057/9780230117372_19

Access Statistics for this chapter

More chapters in Palgrave Macmillan Books from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().