The Future of Global Reinsurance

Chichilnisky, Graciela (1996): The Future of Global Reinsurance. Published in: Global Reinsurance North American Special (1996): pp. 67-71.

Abstract

To provide a map to the future, we need a realistic appraisal of how we got where we are. This is the story of how humans have hedged risks. There are two basic and distinct approaches: statistical and economical. The former is typical of the insurance industry; the latter typifies the securities industry. Both are needed to manage today's catastrophic risks. Neither alone will do. I will show below how a combination of both leads to efficient outcomes, and is the way to be the future.

Hedging unknown catastrophic risks requires a blend of skills from the securities and the insurance industries. By tapping large and liquid capital markets, reinsurers will be better able to deal with correlated, catastrophic risks. At the end of the intelligent customized use of derivatives and technology will separate the winners from the losers.

• Item Type: MPRA Paper
• Language: English
• Keywords: hedging; hedge risk; reinsurance; catastrophe; catastrophic risks; securitization; environmental risks; global finance; catastrophe bundles; pricing
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance ; Insurance Companies ; Actuarial Studies; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q51 - Valuation of Environmental Effects

References

Valerie Denney: 'Editor's Note', Global Reinsurance, Dec. 1995-Feb. 1996, p. 14.

G. Chichilnisky: 'Financial Innovation in Property Catastrophe Reinsurance: The Convergence of Insurance and Capital Markets," Risk Financing Newsletter, Vol. 13, No. 2., June 1996, p. 1-7.

G. Chichilnisky: 'Catastrophe Bundles Can Deal with Unknown Risks', Best's Review, Feb. 1996, p. 1-13.

L. Boulton: 'Debate Warms Up' Financial Times, Business and the Environment, p. 10, May 29, 1996.

G. Chichilnisky: "The Greening of the Bretton Woods' Financial Times, Jan. 2, 1996, advanced a proposal for a global market on greenhouse gas emissions and an International Bank for Environmental Settlements to handle executions, clearing and settlements as well as regulating borrowing and lending rates.

Chichilnisky G. and G. M. Heal. "Global Environmental Risks", Journal of Economic Perspectives 7, 1993, 65-46.

R. Waters: 'Investors get a chance to gamble on weather: US insurance group links bonds to hurricane losses' Financial Times, July 30, 1996.

G. Chichilnisky: 'Markets with Endogenous Uncertainty: Theory and Policy' forthcoming in Theory and Decision, 1996.

D. Cass, G. Chichilnisky and H. Wu 'Individual Risks and Mutual Insurance' Econometrica, Vol. 64, No. 2, March 1996, p. 333-341.

G. Chichilnisky and G. Heal 'Catastrophe Bundles: Financial Markets and Changing Climate Risks' forthcoming in Economic Analysis and Changing Climate Risks' forthcoming in Economic Analysis, Springer Verlag.