Valuation of Catastrophe Reinsurance Contract Considering Equity Depression – The Application of Hybrid CAT Bond Issuing
| Autor: | Chen Juei-Hsiang, 陳瑞祥 |
|---|---|
| Rok vydání: | 2012 |
| Druh dokumentu: | 學位論文 ; thesis |
| Popis: | 100 In recent years, frequent and severe catastrophic events have caused significant loss to reinsurance companies, which seriously eroded equity value, increased bankruptcy risk, and thereby affected reinsurance contract valuation. When considering various risk factors, downside risk transfer in equity value of reinsurance companies, in addition to catastrophe risk transfer, has also become one of the factors to consider. This study constructs a contingent claim framework designed to evaluate reinsurance contracts and proposed-hybrid catastrophe (CAT) bond to scrutinize reinsurance companies as to how they reduce default risk and increase reinsurance contract value by issuing CAT or hybrid CAT bonds. The aim of reinsurance companies in issuing these bonds is to transfer catastrophe risk to capital market as a way to address the capital shortage problems these reinsurance companies had to face during catastrophe events. However, with an unprecedented number of natural disasters of recent years, along with resulting huge economic losses, catastrophe risk situation has become more serious. As suggested in literature, CAT bonds have been unable to meet the requirements of reinsurance companies due to the amount of issuance in the market. Based on the concept of hybrid instruments proposed by Barrieu and Louberge (2009), the study designed a variation of hybrid catastrophe bond that combines CAT bond with a catastrophe equity put option. Such a bond possesses instrument characteristics of pre- and post-loss financing that will better provide channels for risk transfer. Results showed that changes, basis risks, trigger levels, and catastrophe risks inherent in reinsurance contract and default risk premium value are related to the initial capital structure of the reinsurance company. Under the premise that instruments are set the same, even with the consideration of basis risk, the issuing of hybrid CAT bonds is comparable to that of CAT bonds in that it can further reduce default risk premium and increase reinsurance contract value. That is, a combination type of instrument is more able to increase the value of reinsurance contract than one that is standalone. It is more beneficial to reinsurance companies now if such type of hybrid CAT bond instrument were issued. |
| Databáze: | Networked Digital Library of Theses & Dissertations |
| Externí odkaz: |
|