Catastrophe Reinsurance and Risk Capital in the Wake of the Credit Crisis

Christopher L. Culp

Risk Management Consulting Services, Inc.; Compass Lexecon

Kevin O'Donnell

affiliation not provided to SSRN

August 3, 2009

Chicago Booth Research Paper No. 09-31
CRSP Working Paper

In 2008, the property and casualty insurance industry was adversely affected by significant natural catastrophe-related losses, floundering investments, and limited access to capital markets. Catastrophe reinsurance premiums have risen and capacity has shrunk. Especially at such times, risk capital is an essential component of a P&C insurer’s economic balance sheet. In this article we review the similarities and differences between internal risk capital (provided by investors in insurance company debt and equity in the sense of Merton and Perold (1993)) and external risk capital (including traditional reinsurance, catastrophe derivatives, industry loss warranties, and insurance-linked securities). We explore the relative benefits and costs of alternative sources of risk capital for both policyholders and insurance company shareholders and analyze the impact of the credit crisis on these various interrelated markets.

Number of Pages in PDF File: 39

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Date posted: August 3, 2009 ; Last revised: October 2, 2009

Suggested Citation

Culp, Christopher L. and O'Donnell, Kevin, Catastrophe Reinsurance and Risk Capital in the Wake of the Credit Crisis (August 3, 2009). Chicago Booth Research Paper No. 09-31; CRSP Working Paper. Available at SSRN: http://ssrn.com/abstract=1443105 or http://dx.doi.org/10.2139/ssrn.1443105

Contact Information

Christopher L. Culp (Contact Author)
Risk Management Consulting Services, Inc. ( email )
25 E Superior St
Chicago, IL 60611
United States
HOME PAGE: http://www.rmcsinc.com
Compass Lexecon ( email )
332 South Michigan Avenue
Suite 1300
Chicago, IL 60604
United States
Kevin O'Donnell
affiliation not provided to SSRN
Feedback to SSRN

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