Catastrophe Bonds and Systemic Risk

38 Pages Posted: 20 Aug 2013 Last revised: 21 Aug 2013

See all articles by Gregor N. F. Weiss

Gregor N. F. Weiss

University of Leipzig - Faculty of Economics and Management Science

Denefa Bostandzic

Heinrich Heine University Dusseldorf

Felix Irresberger

University of Leeds - Leeds University Business School (LUBS)

Date Written: August 20, 2013

Abstract

Do catastrophe bonds increase or decrease the exposure and contribution to systemic risk of the issuing insurance companies? And if such issues influence systemic stability, what design features of the bond and characteristics of the issuing insurer cause catastrophe bond issues to destabilize the financial sector? Contrary to current conjectures of insurance regulators, we find that the contribution of ceding insurers to systemic risk actually decreases significantly after the issue of a catastrophe bond. We empirically confirm that a higher pre-issue leverage, a higher firm valuation and previous cat bond issues all exert a decreasing effect on the issuer's systemic risk contribution.

Keywords: cat bonds, insurance industry, systemic risk

JEL Classification: G22, G01, G34

Suggested Citation

Weiss, Gregor N. F. and Bostandzic, Denefa and Irresberger, Felix, Catastrophe Bonds and Systemic Risk (August 20, 2013). 26th Australasian Finance and Banking Conference 2013. Available at SSRN: https://ssrn.com/abstract=2313160 or http://dx.doi.org/10.2139/ssrn.2313160

Gregor N. F. Weiss (Contact Author)

University of Leipzig - Faculty of Economics and Management Science ( email )

Grimmaische Str. 12
Leipzig, 04109
Germany
+49 341 97 33821 (Phone)
+49 341 97 33829 (Fax)

HOME PAGE: http://www.wifa.uni-leipzig.de/nfdl

Denefa Bostandzic

Heinrich Heine University Dusseldorf ( email )

Universitätsstrasse 1
Duesseldorf, DE NRW 40225
Germany

Felix Irresberger

University of Leeds - Leeds University Business School (LUBS) ( email )

Leeds LS2 9JT
United Kingdom

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