Insurance Derivatives: A New Asset Class for the Capital Markets and a New Hedging Tool for the Insurance Industry
The number and severity of natural catastrophes has increased dramatically over the last decade. As a result, there is now a shortage of capacity in the property catastrophe insurance industry in the U.S. This article discusses how insurance derivatives, particularly the Chicago Board of Trade's catastrophe options contracts, represent a possible solution to this problem. These new financial instruments enable the capital markets to provide the insurance industry with the reinsurance capacity it needs. The capital markets are willing to perform this role because of the new asset class characteristics of securitized insurance risk: positive excess returns and diversification benefits. 1997 Morgan Stanley.
Year of publication: |
1997
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Authors: | Canter, Michael S. ; Cole, Joseph B. ; Sandor, Richard L. |
Published in: |
Journal of Applied Corporate Finance. - Morgan Stanley, ISSN 1078-1196. - Vol. 10.1997, 3, p. 69-81
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Publisher: |
Morgan Stanley |
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