Munich Personal RePEc Archive

Financial Innovation in Property Catastrophe Reinsurance: The Convergence of Insurance and Capital Markets

Chichilnisky, Graciela (1996): Financial Innovation in Property Catastrophe Reinsurance: The Convergence of Insurance and Capital Markets. Published in: Risk Financing Newsletter , Vol. 13, No. No. 2 (June 1996)

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Abstract

The property catastrophe reinsurance industry faces a major challenge. Since 1989, climatic volatility has produced unprecedented insured losses of $43 billion, $18 billion of which were from Hurricane Andrew alone. A surge of insurer defaults and dramatic changes in capacity and pricing have followed in their wake.

Catastrophic risks must be addressed with innovative financial approaches that bring the insurance industry closer to the securities industry. This article discusses the new financial instruments that can be successfully used to hedge unknown catastrophe risks.

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