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

Journal of Risk Finance Vol. 10, No. 5 (2009)

Chicago Booth Research Paper No. 09-31

CRSP Working Paper

Posted: 3 Aug 2009 Last revised: 21 Dec 2014

Christopher L. Culp

Johns Hopkins University - Institute for Applied Economics, Global Health, and Study of Business Enterprise; Swiss Finance Institute; Compass Lexecon; Risk Management Consulting Services, Inc.

Kevin O'Donnell

Independent

Date Written: August 3, 2009

Abstract

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.

Suggested Citation

Culp, Christopher L. and O'Donnell, Kevin, Catastrophe Reinsurance and Risk Capital in the Wake of the Credit Crisis (August 3, 2009). Journal of Risk Finance Vol. 10, No. 5 (2009); Chicago Booth Research Paper No. 09-31; CRSP Working Paper. Available at SSRN: https://ssrn.com/abstract=1443105 or http://dx.doi.org/10.2139/ssrn.1443105

Christopher L. Culp (Contact Author)

Johns Hopkins University - Institute for Applied Economics, Global Health, and Study of Business Enterprise ( email )

3400 N. Charles Street
Baltimore, MD 21218
United States

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Compass Lexecon ( email )

332 South Michigan Avenue
Suite 1300
Chicago, IL 60604
United States

Risk Management Consulting Services, Inc. ( email )

1501 N. State Pkwy., No. 7A
#7A
Chicago, IL Illinois 60610
United States
3125877163 (Phone)

HOME PAGE: http://www.rmcsinc.com

Kevin O'Donnell

Independent ( email )

No Address Available

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