Study On CAT Bond And Its Application In China

Catastrophe (CAT) risk refers to the probability of sudden and severe accidents or disasters. The insurance industry always takes earthquakes, floods, and other natural disasters as catastrophe risks. According to SIGMA, the world catastrophic losses hit a record high at USD 700bn in 2003,of which USD 580bn caused by natural catastrophe and USD 120bn caused by man-made disasters. While CAT will definitely cause losses to the nation and the people, the compensation and rescue are necessary and important.With the urbanization and population concentration natural catastrophe impose greater impacts on human beings.Once a catastrophic risk coming to us,the fatalities and the insured losses are huge.How to compensate for the great loss caused by catastrophe becomes an important issue.As one of the most important innovations in international risk management field for the past few decades, catastrophe risk securitization is born to solve the inconsistency between the increasing catastrophe risk safeguarding demand and the limited capacity of traditional insurance industry. Since 1990s, the products of catastrophe risk securitization such as CAT bond, CAT option ,CAT future have also been widely used in capital market of USA and EU. Among of these products, CAT bond is most widely issued and its transactions also is very large. China is regarded as a country with more catastrophic risk and catastrophic risk management methods is relatively lacking. But our financial market is uncompleted and systems of laws are poor .Under these conditions ,CAT bond is suitable. So, author choose 'Study On CAT bond And Its Application In China'as my thesis.This paper is composed of four parts.Part one analyzes the characteristics of catastrophe risks and reinsurance, the traditional method of catastrophe risk transferring. Firstly, author gives a brief introduction to the catastrophe risk conditions in the world. From the analysis of the statistics of global catastrophic events, we can draw a conclusion as follow: the scale of natural catastrophes and man-made disasters has been on the increase since 1970. And reinsurance has long been played an important role in the managing of catastrophe risk of insurers since it came into being. But now it has some shortcomings.Part two explores the definition and classification of CAT bond,then analyzes the cause of CAT bond's emergence and CAT bond's development in other countries.Part three explores the basic theory of CAT bond. And a bi-tree actuarial analysis is given in it to elaborate the method of pricing CAT bonds. This analysis is clear and simple, and may have some enlightening merits for the CAT bonds pricing issue.In the last part, The author analyzes China's Catastrophe Situation and the unfavorable conditions of China's CAT bond at present, then some suggestions also been given to carry out CAT bond in china.