The Use of Postloss Financing of Catastrophic Risk (original) (raw)

Tax-Deductible Pre-Event Catastrophe Loss Reserves: The Case of Florida1,2

2000

After Hurricane Andrew the U.S. Congress entertained proposals to allow insurers to employ tax-deferred loss reserves. Interest was strong at first, but as the events receded interest waned. However, after the most recent severe hurricane seasons the proposals are again being discussed. In this paper we examine the institution of catastrophic loss reserves in a stylized model of insurance provisions.

Market Insurance and Self-Insurance through Retrofit: Analysis of Hurricane Risk in North Carolina

ASCE-ASME Journal of Risk and Uncertainty in Engineering Systems, Part A: Civil Engineering, 2017

Insurance and retrofit are potentially effective but currently underutilized mechanisms to manage natural disaster risk. We use an empirical analysis of hurricane risk to residential buildings in North Carolina that includes a detailed, empirically-based representation of the building inventory, risk, insurance and retrofit strategies to examine voluntary choices between insuring, retrofitting, or doing nothing. Using an expected utility framework, we investigate how decisions change with changes in retrofit cost, risk-based insurance premiums, and risk attitudes. Individual loss distribution functions that are specific to location and structural characteristics influence the choice to insure and/or retrofit. We find that subsidizing retrofit has the potential to move the uninsured towards some form of risk reduction and is potentially cost effective. The analysis is novel in linking homeowner decisions regionally to detailed hurricane loss and retrofit modeling.

The Financing of Catastrophe Risk

One of the most important components of the balance sheet of a propertycasualty insurance company is the loss reserve. In spite of what the term may suggest, a loss reserve is not a pot of funds set aside for the uncertain future. It is an accounting entry, a liability on the balance sheet. More precisely termed the unpaid-losses account, the loss reserve expresses the amount the company expects to pay out in the future to cover indemnity payments that will come due on policies already written for losses that have already been incurred and to cover the costs of dealing with the associated claims. The latter category of costs, which includes, for example, the litigation costs associated with settling claims, is called loss-adjustment expenses. I If loss reserves were determined solely on the basis of pure insuranceaccounting theory, they would reflect only those factors that affect the size, frequency, and pattern of future claim payments and loss-adjustment expenses. Such factors would include changes in patterns of actual claim payments; changes in inflation rates, weather patterns, and technology; and, particularly

Catastrophe Financing for Governments

OECD Working Papers on Finance, Insurance and Private Pensions, 2011

With rapidly increasing population and growing catastrophe exposure in their countries, many more government leaders (including Presidents, Prime Ministers and heads of Kingdoms) are now faced with this strategic question: how best develop a national strategy to hedge against the massive economic burden of extreme events that could hit their country tomorrow? We propose a framework to help those leaders in governments around the world and their advisors think more clearly about these issues, focusing specifically on the role that risk transfer mechanisms alternative to traditional insurance can play. The report provides a case study of the $290 million multi-peril, multi-tranche catastrophe bond recently sponsored by the Government of Mexico and arranged by the World Bank under the MultiCat Program. We discuss the step-bystep creation of this catastrophe bond, from starting discussions that took place in 2008 to the investor road show and the successful issuance of the bond in October 2009. This joint initiative could provide an example for other countries that wish to establish their own financial coverage solution against disasters, as part of a broader national risk management strategy. We illustrate this with the case of the government of Chile and earthquake risks. It also shows that considering countries, or even cities, for the issuance of such insurancelinked securities (ILS) could considerably expand this market for alternative catastrophe risk transfer instruments.

Disaster Risk Financing and Insurance: How Far Have We Known?

Bina Ekonomi

Natural catastrophes have resulted in massive losses for Indonesia. The government lacks the capacity to pay all damages caused by the disasters. The purpose of this research is to map the literature on catastrophe risk finance and insurance, particularly in terms of financial instruments that can be deployed. The scoping review approach was used in this study to locate and map relevant material. The findings of this study revealed that there are still significant research gaps on the issue of catastrophe risk finance and insurance, beginning with the research aim, financial instruments mentioned, and research methodologies and procedures applied. This study is planned to serve as the foundation for future research on the subject of catastrophe insurance in developing nations.