Capital and Insurance Markets Are Converging in Both Product Offerings and Institutional Participation

目录

Topic: “Capital and insurance markets are converging in both product offerings and institutional participation” Critically analyze this statement with examples and evidences

1. Introduction 1

2. INSURANCE MARKET 2

2.1 CAT bond 2

2.2 CAT bond used in capital market as financial product 3

3. Capital market 4

3.1Option used in capital market as insurance product 4

3.2 Catastrophe option 5

4. Recommendation 6

5. Conclusion 7

References 8

Topic: “Capital and insurance markets are converging in both product offerings and institutional participation” Critically analyze this statement with examples and evidences.

1. Introduction

The converging capital and insurance markets has become most talked about subjects in the risk management community today. That describes the capital and insurance markets have begins to enter certain sectors of each other’s businesses. For example, investment bank transfers certain risks to capital market, such as Catastrophe (CAT) bond and some particular options.

2. INSURANCE MARKET

Insurance industries receive huge benefits from packing cash flows associated with risk into bonds, swaps and securities that could be trade in capital market. An insurance industry’s are in the business of assuming risk for individuals or institutions. In order to insure profit in this business, an insurance industries issue policies such as Catastrophe bond to capital markets. This reduce insurance industry’s risk, because if policy default and then the loss is share with large number of investors in capital market.

2.1 CAT bond

The subject of convergence between the insurance and capital market is that a specified set of risks have been transferred to capital markets through Special Purpose Vehicle (SPV). One vehicle used by insurance industries to transfer flood, earthquake and other catastrophe risks to capital markets are CAT bond. “CAT bond is a high-yield debt instrument that...