The Impact of the Financial Crisis and Natural Catastrophes on CAT Bonds

44 Pages Posted: 3 Sep 2012 Last revised: 15 Jul 2014

See all articles by Marc Gürtler

Marc Gürtler

University of Braunschweig - Institute of Technology, Department of Finance

Martin Thomas Hibbeln

University of Duisburg-Essen - Mercator School of Management

Christine Winkelvos

Technology University of Braunschweig

Multiple version iconThere are 2 versions of this paper

Date Written: July 2014

Abstract

This paper employs secondary market data to examine how natural catastrophes or financial crises affect CAT bond premiums. We find evidence that both the financial crisis and Hurricane Katrina significantly affected CAT bond premiums. The premium increase resulting from natural catastrophes can primarily be attributed to an increased coefficient of expected loss calculated by catastrophe modeling companies. Furthermore, our results indicate a positive relationship between corporate spreads and CAT bond premiums. Thus, CAT bonds should not be regarded as "zero-beta" securities. Moreover, our results indicate that deal complexity, ratings, and the reinsurance cycle are significant drivers of CAT bond premiums.

Keywords: CAT Bonds, Financial Crisis, Catastrophe Events, Risk Premium

JEL Classification: G01, G12, G22

Suggested Citation

Gürtler, Marc and Hibbeln, Martin Thomas and Winkelvos, Christine, The Impact of the Financial Crisis and Natural Catastrophes on CAT Bonds (July 2014). Available at SSRN: https://ssrn.com/abstract=2140653 or http://dx.doi.org/10.2139/ssrn.2140653

Marc Gürtler

University of Braunschweig - Institute of Technology, Department of Finance ( email )

Abt-Jerusalem-Str. 7
Braunschweig, 38106
Germany

Martin Thomas Hibbeln (Contact Author)

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany
+49 203 379-2830 (Phone)

Christine Winkelvos

Technology University of Braunschweig ( email )

Abt-Jerusalem Straße 7
Braunschweig, 38106

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