Insurance Risk Securitization And Its Application In China

The push for securitization lies in inefficient handling of catastrophe risk through traditional reinsurance markets. Capital markets should be capable of dealing with this risk at a very low expected rate of return because it is uncorrelated with financial markets at large.In the beginning, this paper analysis the risk that some correlations exist in basic of the insurance conditions and decompose them into separate components, one of which is a type of systemic risk that is highly correlated among insured and one of independence among insured. There are two forms of the decomposition—additive and multiplicative, and we can hedge the insurance risks in the capital markets by the design of insurance contacts and make them abstracting capital instruments, then reach our target.Insurance risk securitization origins from the solution of catastrophe, and at present it is mainly applied in this field. There are two type of securitize instruments—catastrophe bonds and catastrophe options. This paper will introduce the mechanism of these securitize instruments in the basic of analysis to their actuarial principle.In the following, we turn to the relation of the reinsurance and securitization, in the first analyses the capital cost of reinsurance and its limit of financial capacity. Because of this, the securitize instruments can be good tries in the catastrophe insurance field and will gain more focus on.In the last, we turn to the problems of our country, and by study the realistic conditions, it is necessary to bring the securitization into the insurance market of our country. In this section, the probability and difficult of securitization will be analyzed, and the paper brings up some solutions about that and try to design a blood bond about Changjiang river.