The Study On Catastrophe Risk Financing In China

Natural disasters occur frequently in China for its vast in territory, having complex natural environment and geological structure, and variable climate. According to the data of "China's disaster reduction actions", China is one of the few countries that natural disasters occur most frequently and in various types. Serious natural disasters take place almost every year, causing enormous losses. Since the late 80's, the catastrophic losses and occurrences of China keep rising with the global deterioration of the natural environment and China's socio-economic development. From 1990 to 2008, at an average annual rate due to various types of natural disasters, about 300 million people are affected, more than 30000 houses collapsed, over 900 people were resettled emergently, and direct economic loss of more than 200 billion CNY. On May 12th in 2008, Wenchuan earthquake caused 69,229 people killed and 374643 wounded, and 17923 missing which resulted in direct economic losses amounted to 845.1 CNY.Facing the great catastrophic risk and losses, the current situation of China's catastrophe risk financing is:underdevelopment of financing in the insurance market; rare financing channels in the capital market; the government is the main provider of catastrophe risk financing. Government is the main supporter of financing when catastrophe happened, which financing means is simple, inadequate ex ante financing strategy and lacking of planning, the overall catastrophe risk financing is inefficiency. Meanwhile the frequent occurrence and tremendous losses of catastrophe risk and the underdevelopment of catastrophe risk financing in China, it is urgent that the multiple and integral catastrophe risk financing system with Chinese characteristics should be establishedTheoretically, many researchers who studied on catastrophe risk financing have made a lot of fruitful achievements. However, there is few materials of catastrophe risk financing in domestic academic field, and so almost no articles talking about related system, and innovation. Therefore it is valuable in academic and practical field to develop the study of catastrophe risk financing.Thus, this thesis selects catastrophe risk financing as the research object, in the perspective of interdisciplinary, based on the economics, finance and insurance and risk management theory, using empirical analysis, normative analysis, case studies, comparative study, quantitative studies as the main methods, to explore the related issues of catastrophe risk financing from the t academic and practical view. The thesis is composed by eight chapters. The main content of this thesis is arranged as follows:1.Introduction. In this part, the author summarizes the background and significance of this thesis, methods and main content. After reviewing the literature of catastrophe risk financing and related issues, the author proposes the innovation and outlook of the study.2.The basis of catastrophe risk financing. According to the target and contents of the study, the article defines the concepts of catastrophe risk, catastrophe risk financing and other related issues, describes its impact on the macroeconomic, then explores the interactive relationship between catastrophe risk financing and catastrophe risk management, and evaluates the role of risk financing. Furthermore, based on the challenges that traditional measures of catastrophe risk financing is confronted with, it illustrates the future trend for catastrophe risk financing development.3.Catastrophe risk financing in the insurance market. Based on the principle and tools of traditional catastrophe risk. financing, this thesis analyzes the characteristics of the cost's composition of insurance financing, how the financing cost is determined using the partial equilibrium theory, and the difference of the financing cost in different market conditions. Onwards, it evaluates the efficiency of catastrophe risk financing, and illustrate the reasons for the loss of financing efficiency from supply and demand. Finally, it concludes the current situation and trends of catastrophe insurance plan in different by comparative study.4.Catastrophe risk financing in the capital market. After describing the generalization of the catastrophe risk financing theories and tools in the capital market, this thesis explores the internal efficiency of catastrophe risk financing and put forward how to optimize the portfolio of moral hazard and basis risk to improve financing efficiency in a given technology and variable condition by using financial economics to study the determination of the financing cost, and comparing the catastrophe reinsurance with catastrophe securities in financing cost through empirical data exploration. Finally it shows the relationship between product design and financial efficiency by case study.5. The catastrophe risk financing by government. Using economics, this thesis analyzes the causes and performance of market failure in traditional catastrophe risk financing. It studies the possibility of price discrimination and its damage of financing efficiency; the affordability and solutions, as well as the various policy interventions effectiveness under specific conditions (especially the fixed premium), thus it suggests the adoption of adaptable and combined intervention. Finally it concluded that for the existence of dependent individual risks, the opportunity cost of catastrophe reserves, liquidity requirements, the classic conclusions that "Government in catastrophe risk financing maintains risk neutral" cannot exist, so it is necessary for the government to carry out ex ante financing.6. Integration catastrophe risk financing. Based on the analysis before and comparing the advantages and disadvantages of the catastrophe risk financing in the insurance market, capital market and government, this thesis demonstrates the integration effect and impact on the improvements of financing efficiency in an integrated system that including insurance market, capital market and government. In order to improve financing efficiency, the specific integration way was proposed by the liquidity gap model.7. The constraint and choice of catastrophe risk financing in China. Based on the necessity and urgency of developing catastrophic risk financing in China, this thesis evaluates the constraint of catastrophe risk financing in insurance market, capital market and government. Simultaneously it shows the idea of catastrophe risk fund, its foundation and applicability in China.8 The mechanisms of catastrophe risk fund. On the basis of earlier studies and the actual situation of China, this thesis put forward the objectives, principles and specific protection design of catastrophe risk fund. Using the liquidity gap model, It demonstrate how to integrate insurance market, capital market and the government in China's catastrophe risk financing, and make full use of ex ante and post ante financing strategies to maximize the improvement of the catastrophe risk financing efficiency. Furthermore, the specific design of management, operations, loss apportionment of China's catastrophe risk fund, and the external conditions that fund's support supports fund smooth operation was given.The progress and creation of study made in this thesis are mainly reflected on three aspects:As the frequent occurrence of catastrophe risk, many studies have paid great concerns to this topic and made fruitful results. In China catastrophe risk financing is playing an important role in catastrophe risk management. However, there is few materials of catastrophe risk financing in domestic academic field, and even the term has never been defined. For this reason, this thesis selects catastrophe risk financing as the objective. Taking the financing efficiency as the key, and put the catastrophe risk financing into the.financial, economical paradigm, the thesis have broken through the existing material limitation through replacing traditional way to compensate the loss of catastrophe risk with a new way to rearrange finance by adopting financial market theory and risk management theory.Study on efficiency of risk financing and government intervention.1) While study on financing efficiency losses and the government intervention, raise the possibility of price discrimination, it illustrates the loss of insurer's pricing and efficiency under price discrimination. Under the conditions of fixed premium, it explores the catastrophe insurance financing efficiency in different market and studies how the income structure affects the effect on fixed premium and gives the contingent and specific combinations of interventions.2) The internal efficiency of catastrophe risk financing in capital market. The study is engaged in moral hazard and basis risk. Under fixed technological conditions, it analysis how to choose the optimal combination of moral hazard and basis risk to improve financing efficiency. What's more, it proves that the technology can be advanced, and to improve the whole financing efficiency by advanced techonology.3) The financial mechanism including insurance market, capital market and government will bring to kinds of integration efficiency:substitution effect and complementary effect. It studies how the two types come into being, and how to improve financing efficiency.