The Challenges of Catastrophe Risk Management: Empirical Analyses in the CAT Bond Market

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• Publisher: Cuvillier Verlag
• Year: 2021
• eBook ISBN:
  9783736963788
• Print ISBN:
  9783736973787
• Edition: 1

Due to the increasing relevance of natural catastrophes as a significant global source of risk and the capacity constraints in primary insurance and reinsurance markets, CAT bonds have become an important instrument to manage catastrophe risks by transferring them to the capital market. In three empirical studies, this dissertation examines the challenges related to catastrophe risk management with CAT bonds. First, the factors that influence the substitution of traditional reinsurance by CAT bonds are identified. These factors consist of the insured risk layer and the extends of reinsurer default risk, basis risk, and asymmetric information. Second, the accessibility of the CAT bond market for (re)insurance companies is analyzed and the results exhibit the existence of barriers to market entry in the form of higher premiums being paid by less reputable and financially weaker CAT bond sponsors. The third empirical study shows that CAT bond sponsors are susceptible to moral hazard, but also that moral hazard can be successfully prevented by sufficient loss retention or by the use of non-indemnity CAT bonds. Altogether, this dissertation contributes to improving the understanding of the CAT bond market and the challenges of catastrophe risk management using CAT bonds.

Table of contents

• List of Figures
• List of Tables
• List of Symbols
• 1 Introduction
• 1.1 Problem Definition and Objectives of This Work
• 1.2 Course of Investigation
• 2 Structure and Market of CAT Bonds
• 2.1 The Structure of CAT Bonds
• 2.2 Development and Properties of the CAT BondMarket
• 3 Risk Transfer beyond Reinsurance –the Added Value of CAT Bonds14
• 3.1 Motivation
• 3.2 Literature Review and Hypotheses
• 3.3 Data
• 3.4 Empirical Results
• 3.5 Interim Result
• 4 Hard Markets, Hard Times: On theInefficiency of the CAT BondMarket34
• 4.1 Motivation
• 4.2 Hypotheses
• 4.3 Data
• 4.4 Empirical Results
• 4.5 Interim Result
• 5 Risk Transfer and Moral Hazard: AnExamination on the CAT BondMarket55
• 5.1 Motivation
• 5.2 Moral Hazard: Measurement and Hypotheses
• 5.3 Data
• 5.4 Empirical Results
• 5.5 Interim Result
• 6 Conclusion
• Bibliography