The Basic Study On Development Of Insurance Securitization In China

With an increasing severity, the frequent occurrence of losses resulting from natural catastrophes since the 1990s has generated a crisis in the global reinsurance market. In order to get over difficulties in financial capacity, the insurance companies have innovatively issued products designed to spread the excess risk more widely among international investors (risk securitization) thus accelerating convergence of insurance and capital market. The transfer of insurance risks to the capital market in terms of bonds and derivatives has not only diversified their risks, but also increased their capacity. Insurance securitization is considered, to a broad extent, both as a subset of financial securitization, and as one of many sets of financial risk management tools available for insurers. To investors, insurance securities can offer an effective way to diversify existing investment allocations, while providing relatively high expected returns. In recent year, insurance securitization has proved to offer an effective way to distribute the risks to the capital market. It has played an important role in the development of the insurance industry, as well as in the finance industry.The present paper is divided into five chapters. In chapter one, it provides an introduction to the process of insurance securitization and its products. A definition of insurance securitization is presented, and a description of the evolutionary process which securitization has undergone is given. In chapter two, we theoretically analyze the insurance securitization as a financial risk management tool, discuss a contingent claim model for the pricing of Cat bonds. Using option pricing theory and simulation analysis, we show that investors attracted by the potential for diversification benefits should not overlook the optional features when including these securities in an asset portfolio. Chapter three describes the environments which will affect the development of insurance securitization in China, especially the status of insurance industry and capital market in China. Chapter four studies the feasibility of providing the thought regarding the cross-border securitization of insurance. Chapter five concludes the strategic steps of the development of insurance securitisation in China. The paper ends with a discussion of the future in insurance securitization.