Insurance-Linked Securities: Areas of Research and Future Innovation
Abstract
Insurance-Linked Securities: Areas of Research and Future Innovation
Recent events have served as a powerful reminder of the devastating impact catastrophic disasters can have on economies, businesses and communities. As of mid-2020, some estimates indicate that the cumulative property insurance market losses since 2017 may exceed USD 400 billion globally by the end of 2020, making it, in absolute terms, the worst four-year insurance loss period on record. The economic losses for these disasters far outweigh the insured losses, which means a significant portion of the cost of extreme catastrophic events are born by individuals, enterprises and governments. Responding to the need for additional capacity to support the efficient functioning of the increasingly catastrophe-exposed global re/insurance marketplace, insurance-linked securities ("ILS") represent a permanent and growing source of capital for managing the world's insurable risks. They are used most often by insurers and reinsurers to transfer risks on their balance sheets from potentially large insured losses associated with natural catastrophes to capital market investors. For issuers, ILS represent an alternative to the traditional reinsurance market: instead of passing catastrophe risk on to reinsurers by buying reinsurance, an ILS issuer aims to transfer it directly to the capital markets, where capacity for such risks is greater. For investors, ILS can offer positive long-term expected returns that are non-correlated with traditional asset classes. This session will give an overview of the ILS market, its origins, rationale and function in the global re/insurance marketplace, focusing on how earth observation, weather data, models and forecasts have played a critical role in the market's evolution. The session will outline the key academic research topics of interest in these fields of study and the requirements for successful application of findings that will help drive future innovation and growth in this unique asset class.- Publication:
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AGU Fall Meeting Abstracts
- Pub Date:
- December 2020
- Bibcode:
- 2020AGUFMNH035..05S
- Keywords:
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- 1640 Remote sensing;
- GLOBAL CHANGE;
- 1817 Extreme events;
- HYDROLOGY;
- 4333 Disaster risk analysis and assessment;
- NATURAL HAZARDS;
- 6309 Decision making under uncertainty;
- POLICY SCIENCES & PUBLIC ISSUES