The Evolving Market for Catastrophic Event Risk

Kenneth Froot

No 7287, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper discusses the recent changes in the market for catastrophe risk. These risks have traditionally been distributed through the insurance and reinsurance systems. However, because insurance companies tend to share relatively small amounts of their cat exposures and because insurance companies' capital is threatened by large event, these risks are now being shared partly through the capital markets. In looking to likely future developments, the paper enumerates five key ingredients that successfully structured cat instruments are likely to share: retentions should be substantial; layers of protection should not be too high; dollar amounts of risk transfer should not be too small; loss triggers should be beyond cendent control; and loss triggers should be symmetrically transparent.

JEL-codes: G22 (search for similar items in EconPapers)
Date: 1999-08
New Economics Papers: this item is included in nep-agr and nep-ias
Note: AP
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Citations: View citations in EconPapers (11)

Published as Froot, Kenneth. “The Evolving Market for Catastrophe Event Risk." Risk Management and Insurance Review 2, 3 (Fall 1999): 1-28.
Published as Figlewski, S. and R. Levich (eds.) Risk Management: The State of the Art. Kluwer Academic Publishers, 2001.

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Journal Article: The Evolving Market for Catastrophic Event Risk (1999)
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