Securitization, Insurance, and Reinsurance
J. David Cummins
Temple University - Risk Management & Insurance & Actuarial Science; University of Pennsylvania - Insurance & Risk Management Department
affiliation not provided to SSRN
Journal of Risk and Insurance, Vol. 76, Issue 3, pp. 463-492, September 2009
This article considers strengths and weaknesses of reinsurance and securitization in managing insurable risks. Traditional reinsurance operates efficiently in managing relatively small, uncorrelated risks and in facilitating efficient information sharing between cedants and reinsurers. However, when the magnitude of potential losses and the correlation of risks increase, the efficiency of the reinsurance model breaks down, and the cost of capital may become uneconomical. At this juncture, securitization has a role to play by passing the risks along to broader capital markets. Securitization also serves as a complement for reinsurance in other ways such as facilitating regulatory arbitrage and collateralizing low-frequency risks.
Number of Pages in PDF File: 30Accepted Paper Series
Date posted: October 13, 2009
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