Property Catastrophe Bonds and Insurance Risk Part 1
Property Catastrophe Bonds This article describes property catastrophe bonds, which are probably the best known type of insurance-linked securities . Standard structural features of catastrophe bonds are explained and the main analytical approaches introduced. The chapter explains advantages and disadvantages of these securities from both an insurance company and an investor perspective. SECURITISATION OF PROPERTY INSURANCE RISK The insurance industry is one of the largest warehouses of risk, incorporating the roles of both risk underwriter and risk bearer in the way that the banking industry did three decades ago. Since then, the banking industry has undergone dramatic changes and now passes much of the risk on to investors in the form of mortgage-backed and other securities. A strong argument could be made that the insurance industry should move in the same direction by underwriting insurance risk and then passing a sizable part of it on to investors in the form of standard securiti