Research On Securitization Of Catastrophe Risk Management In Taiwan

Taiwan’s natural environment exposed under frequent and a variety of natural disasters. The global climate changes also make the weather more serious than before. The frequently occurrences of natural catastrophes hasve increased the occurrences of big scale of disasters and the dangerous incidents. According to the record of Central Weather Bureau, the typhoon hit Taiwan on an average about3.7times per year over the past few years and typhoon disaster losses with an average of NT20billion. Taiwan’s921earthquake occurred in1999caused2,500causalities and suffered the economic loss amounted to300b. Therefore, how to separate and transfer the catastrophic risk and minimize the lost of it by using the new catastrophic risk management method and further put it into practice effectively is the important topic for the government, academic and practice world.The total capital of Taiwan’s insurance and reinsurance market cannot cope with the loss of great catastrophic at the moment. Although Taiwan has published the first CAT bond for residence and earthquake in2003, due to the law and supervision problems, it cannot separate the catastrophic risk and decrease the loss effectively. Thus, through the change of government, enterprise, NPO and environment to innovates the system and the tool of catastrophic risk management and to achieve the securitization of the CAT bond through the insurance and capital market. Moreover, to combine with the innovation of the catastrophe derivatives is also a way to help to comply the goal of shift the catastrophic risk and decrease the loss of it.The article using comparison and analyze the catastrophic risk management in Taiwan and adapt the cost-benefit analyses to review the CAT bond of earthquake and residence in Taiwan,2003. On the other hand, the research contains the high-cost of publish, the feasibility of the catastrophe derivatives in Taiwan and CALIS issues. All these are using to build the concept of "reinsurance for main purpose, bond as aider, catastrophe derivatives as supply" catastrophic management system in Taiwan. To be more specific, the main research results including:(1) Take earthquake as example, through the summarize of catastrophic risk management system and tools in Japan, US, NZ and France and combine Taiwan’s current situation to make analysis, the result shows:The total capital in Taiwan’s insurance and reinsurance market cannot deal with the loss of great catastrophic as a traditional catastrophic risk management means. Thus, in the future development of catastrophic risk management, Taiwan should keep publishing CAT bond and extend the time and the range of insurance. This is to construct the complete system of catastrophic risk management in Taiwan and shift, separate the catastrophic risk and decrease the loss of catastrophic risk management.(2) Using the Cost-Benefit Analyses, Scenario Analysis, cross-referenced the fair or foul to discuss the CAT bond of residence and earthquake which published in2003, the result shows:Due to the main organisation of the publisher is undertake by Taiwan Residential Earthquake Insurance Fund and the debt service include LIBOR and most are delegate by issue managers, the investors need to pay the interests. This makes the total capital higher than traditional excess reinsurance. Therefore, the article raise the CAT bond publish organisation structure which takes SPV as core, through balancing the participant of market, ranking, taxing and law to improve the high-cost issue of CAT bond and provide a solution for Taiwan’s republish CAT bond.(3)By combine Taiwan’s catastrophic risk management and different categories of Catastrophe Derivatives and analysis the option of publish CAT, exchange the CAT loss and weather derivative etc., the result shows: the exchange of CAT risk, Limited Lifespan (Sidecar) Company and industry loss insurance can be the transfer risk tools. What is more, the weather derivative and option can used to transfer risk tools for shifting typhoon, rainfall and wind velocity. The CAT option and contingent capital is not suitable in Taiwan. At the same time, using the result of analysis feasibility as foundation, to build a complete Catastrophe Derivatives publish system in product income, equity risk, market participants, rating system, decrease the tax fee, follow the law to achieve the goal of shift risk and risk financing.