Insurance securitization transforms cash flows into financial securities, which are then able to be traded. The risks are passed on to broader capital markets, which diversify investors’ risks. One of the most popular forms of insurance securitization is catastrophe bonds. Insurance securitization and catastrophe bonds, when they perform as expected, can minimize the risk an investor, such as a business, experiences while maximizing their benefits. Options include life, motor, weather and health insurance securitization.
Catastrophe bonds collect a certain amount of money from investors and have a specified loss threshold. As long as there is not a major catastrophe that causes a loss greater than the threshold of the catastrophe bond, investors may enjoy:
1. High returns averaging 10% or more and repayment of principal on catastrophe bonds;
2. Alternatives to reinsurance and the likelihood of growth;
3. Risk aggression issues being solved in the market not the government;
4. And introduction to a source of finance to fund such ventures as a new business or acquisition.
Action Steps
The best contacts and resources to help you get it done
Use risk assessment software to learn about insurance securitization and catastrophe bonds options
Many companies may appreciate having software on hand to assist them in determining catastrophe bonds info, such as risks. Losses of a potential investment are predetermined using a program designed to simulate a possible catastrophe. The parameters of the actual catastrophe taking place are explored in the software program.
I recommend: AIR offers CATRADER, a program that performs comprehensive catastrophe loss analysis through aggregated exposure data.
Risk Management Solutions offers a variety of catastrophe loss analysis software programs for use by investors and insurance analysts.
Consider insurance securitization and catastrophe bonds consulting firms
For companies that believe they may need additional help examining potential catastrophe securitization ventures, a consultant may be more beneficial than software. Consultants can assist in determining a specific catastrophe bond quote and introduce catastrophe securitization insurance information and details.
I recommend: AON offers consultations and advice with respect to areas such as captives, insurance securitizations and catastrophe insurance.
EQECAT can consult on catastrophe bonds and insurance securitization.
Swiss Re and
Zurich Financial Services are major sponsors of catastrophe bonds and other insurance securitization instruments.
Stay current on catastrophe bond information
Catastrophic bonds and catastrophe bonds insurance industries and opportunities can fluctuate over time. As a result, many investors would benefit from subscribing to a magazine or journal that could keep them current on events and ventures.
I recommend: BlackwellPublishing.com provides paid subscriptions to The Journal of Insurance and Risk, a quarterly publication dealing. Attend a conference like the
Insurance Linked Securities Summit to better understand the catastrophic bonds industry and when opportunities might pop up.
Tips & Tactics
Helpful advice for making the most of this Guide
- As with other investment opportunities, it is vital that research is done on each and every individual potential investment to ensure the greatest chance at enjoying maximized benefits when it comes to insurance securitization and catastrophe bonds. For example, with a one year bond, it was possible for many investors and money managers to earn money by investing in hurricane insurance catastrophe bonds the year immediately following El Nino. This is because the odds of such a devastating Atlantic hurricane season surpassing the loss threshold were extremely low and virtually nil in the one year before the bonds would mature. Information like this probably made investors feel very secure in their decision. It is advisable to perform this type of background check prior to any investment to determine benefits and/or drawbacks.
The official source of Insurance Securitization and Catastrophe Bonds is
the Insurance Securitization and Catastrophe Bonds page at Business.com
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