Catastrophe Bonds, Research, And Its Application In China

With increasing frequency and severity,natural catastrophes since the 1990s have weighed much on insurance and reinsurance industry.In China,although we have suffered from two massive catastrophes in 2008,the insurance industry did not function as they supposed to.In order to improve financial capacities, (re)nsurance companies in developed countries like US,UK,Japan innovatively issued insurance linked securities,which spread the catastrophe risk on capital market.By far,catastrophe bond is the most successful one.The paper discusses what catastrophe bond is,how it functions,what significance it brings and whether china can apply it locally.To discuss the feasibility of the issuance of CAT bond in China,the paper applies Principal Components Analysis to create an index to measure the comprehensive maturity of capital and insurance market in a country.By comparison with countries which have issued the bond,we find that the development of China's capital and insurance markets is at a relatively low level and the issuance of CAT bond is not well-timed right now.But experience from Mexico and Taiwan instructs that at this level the issuance sponsored by government is feasible.Although China still confronts some difficulties,it can issue the CAT bond through foreign institutions on overseas markets at first.