Abstract: This paper discusses the establishment of reasonable necessity of catastrophe insurance and traditional insurance and reinsurance mechanisms limitations then, catastrophe insurance securitization analyzed the causes and the main form. Finally, the catastrophe insurance the development of securitization were evaluated and made recommendations.
First, establish a rational need for catastrophe insurance system In recent years, global disasters, the country to the disasters caused huge economic losses, according to statistics, the United States in September 2001 events of 11 September caused 300 billion dollars in economic losses, the end of 2004 Indian Ocean tsunami more than 100 billion euros of direct loss, in May 2008 China Wenchuan earthquake of magnitude 8.0 generated 845.1 billion yuan of economic losses, while the March 2011 earthquake in Japan has brought more than 1 trillion yen damage award amounts.
The occurrence of a major disaster, a country will impact on the smooth functioning of the national economy, it will break the state's financial balance, the impact of international trade and thus affect the balance of payments, slow economic growth, or even bring the price fluctuations, so establish a rational catastrophe insurance system, the risk of full preparation for a reserve fund to rapid and sustained economic development of the country to provide basic protection.
Second, the traditional general commercial insurance and reinsurance underwriting catastrophe risk mechanisms limited ability to look at the history of the tremendous disasters, catastrophic risks are difficult to find the following characteristics:
1 occur less frequently with ordinary property damage and personal injury accident rate compared to the probability of occurrence of catastrophic risk is much smaller than the first two, serious accidents is usually disaster of epic proportions for many years.
2 loss of large magnitude. Daily occurrence and property damage and personal injury, compared to the risk of catastrophic losses are enormous, often tens of thousands or even hundreds of millions of the first two times.
3 affect a wide range of strong correlation. Catastrophic accidents can cause a wide range of effects, so adjacent areas while the subject of a number of risk losses, then, different risk the loss of the underlying events occurred with more independence weak.
4 is difficult to predict the occurrence of disasters, due to a lower frequency of catastrophic accident, the relevant statistical data is limited, and the factors that affect the number of catastrophic accidents, making the catastrophe risk prediction difficult for most of the catastrophe risk, mankind can not be scientific, accurate predictions.
5 by geographical factors. Different parts of the terrain, topography, climate and other natural conditions, the probability of natural disasters vary greatly while the population in different regions, crop varieties, customs, traditions and other factors such as housing construction will also affect the magnitude of disaster losses.
As the special nature of catastrophic risk, general commercial insurance in the traditional reinsurance mechanism to spread the risks can only get a limited role to play. The risk of catastrophic risk in the subject of the law of large numbers of highly relevant failure, coupled with the unpredictability of catastrophic risk, the magnitude of the risk of loss is too large, making the catastrophe risk beyond the traditional scope of insurable risk.
Catastrophic risk may result in huge economic losses makes the insurance market and the lack of adequate reinsurance market for catastrophe risk market players reinsurance Once the insurance company underwriting catastrophe insurance or reinsurance companies can not afford a particular disaster claims, insurance companies and Reinsurance companies will face bankruptcy.
Third, the catastrophe insurance securitization and its main form of catastrophe insurance system based on the need to establish as well as traditional commercial insurance and reinsurance system limitations, innovative means of catastrophe risk management - insurance, catastrophe bonds came into being, its mainly in the form of catastrophe bonds, catastrophe insurance, catastrophe insurance futures and options and catastrophe swaps.
A catastrophe bonds. Catastrophe bonds (Cataslrophe Bond) is established underwriting income and losses connected bonds. It's part of the insurance underwriting risk transfer to the bond investors. A typical catastrophe bond transactions, there are four Subject: purchase of catastrophe insurance policyholders, direct insurance companies, reinsurance intermediary or a special purpose vehicle called the stock market investors and the insurance company will cover the catastrophic risk of their way to a combination of different classification, through a special purpose entities to issue catastrophe bonds, investors buy bonds to get through the risk-adjusted returns. special purpose is to direct insurance companies and capital markets of the 'intermediary', directly to the insurance company to provide its catastrophe reinsurance and direct insurance companies through its capital markets to issue bonds. to issue bonds to raise funds but also by the operation, and depending on whether there will be catastrophe proceeds to pay interest to investors or to direct the insurance company to fulfill its reinsurance contracts.
2 catastrophe insurance options. Catastrophe insurance options (catastrophe Insurance Option) is a securitization of catastrophe insurance derivatives. Chicago Board of Trade since 1992, began trading catastrophe insurance options its options products based on National Insurance Service Bureau representative across the country to bring together disaster risk insurance policy, the loss ratio by analyzing fluctuations in the loss to regularly publish a dynamic index and the index as the object of sale the insurance company underwriting the risk according to their size , by the option premium income in buying products to sell on the operation, within certain limits to achieve the effect of hedging. Links to free download http://eng.hi138.com
3 catastrophe insurance futures. Catastrophe Insurance Futures (catastrophe Insurance Future) is the United States in December 1992 launched a Chicago Board of Trade to the United States Bureau of the selected report insurance services company reported catastrophe losses calculated giant rate of catastrophic losses by trading index futures as a financial futures instruments.
4 catastrophe swap. Catastrophe swap (Catastrophe Swaps) refers to the two parties exchanged in accordance with the terms agreed in advance each other's responsibility for catastrophic risk it for different geographical risk diversification insurers to provide a new channel.
Fourth, the securitization of catastrophe insurance, catastrophe insurance evaluation and recommendations to the insurance securitization market and the reinsurance market, there is the risk of further spread to the capital markets, the insurance market, reinsurance markets and capital markets communicate with each other, not only distributed insurance companies and reinsurance companies operating risks, but also active capital market. catastrophe insurance securitization market players increased the risk of the insurance underwriting capacity, and promote the development of the insurance market, reduce the government burden of catastrophic damages. giant disaster insurance securitization tool has strong liquidity, which makes the risk of catastrophe in all regions in the international capital markets can be fully distributed, and promote the stable development of the global economy.
Catastrophe insurance securitization has brought many contributions to economic development, while not as a financial tool to avoid the inherent risks of capital market, the existence of speculators, making catastrophe insurance securitization of financial instruments have increased the financial system run the risk, so regulators should strengthen legislation to regulate the operation of the market and protect the interests of the main parties on the market, while regulators can also participate in the sale of catastrophe insurance, financial instruments, which use economic means to achieve market control, In addition, in appropriate circumstances, the regulator can also use administrative means to intervene.