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References (3)
-
M. Pauly (1974)
Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse SelectionQuarterly Journal of Economics, 88
-
Vivek Bantwal, H. Kunreuther (2000)
A Cat Bond Premium Puzzle?Journal of Psychology and Financial Markets, 1
-
John Major (1999)
Index Hedge Performance: Insurer Market Penetration and Basis Risk
- Publisher
- Emerald Publishing
- Copyright
- Copyright © Emerald Group Publishing Limited
- ISSN
- 1526-5943
- DOI
- 10.1108/eb043446
- Publisher site
- See Article on Publisher Site
Abstract
This article examines how reinsurance coupled with new financial instruments can expand coverage to areas exposed to catastrophe losses from natural disasters, and demonstrates how reinsurance and the catastrophelinked financial instruments can be combined to lower the price of protection from its current level. A simple example illustrates the relative advantages and disadvantages of pure catastrophic bonds and pure indemnity reinsurance in supporting a structure of payments contingent on certain extreme events occurring. The authors suggest ways to combine these two instruments using customized catastrophe indices to expand coverage and reduce the cost of protection. This article states six principles for designing catastrophic risk transfer systems and discusses practical issues for implementation, and then concludes with suggestions for future research.
Journal
The Journal of Risk Finance – Emerald Publishing
Published: Feb 1, 2000