Securitization Of Catastrophe Risk And The Development Of CAT Bonds In China

While the deterioration of the world-wide natural environment, China is suffering from natural catastrophes (CAT) more frequently and more severely. However, we have not yet constructed our effective CAT-risk control system, and the state treasury is mostly responsible for the re-construction and rescue work. This arrangement lacks adequate fund resources and functions slowly. Nevertheless, CAT insurance can overwhelm these limitations, and the China Insurance Regulatory Commission is doing the research of it.Traditionally, the insurance companies rely on re-insurance for their covered risks. However, the traditional re-insurance implies the credit hazard, the moral hazard, etc., and recently, is showing its embarrassing situation for the shortage of its coverage capability. So it is necessary to look for a new method to transfer covered risks.Insurance securitization enables the capital from capital market into insurance market, and hence helps the insurance or re-insurance companies to transfer their risks. In these years, insurance securitization has experienced a rapid development in the world, and it should be well developed in China.Under the background of this insurance securitization, this article analyses the situation of our country's natural catastrophes and existing CAT insurance system, then proposes the idea of insurance securitization in China. In addition, this article introduces the major insurance derivatives of other countries, carefully analyses the possibility of developing CAT bonds in China, considers the general conditions of China's laws and bonds market, and finally makes a conclusion that we should begin our insurance securitization process with the CAT bonds, and develop our CAT insurance derivatives market in a gradual manner.