The Study On The Catastrophe Bonds And Its Pricing Mechanism

In recent years, the economic losses caused by catastrophic events and their frequency of occurrence have experienced an upward trend. Catastrophe caused by natural disasters makes the insurer a serious shortage of underwriting capacity, leading them an enormous challenge of solvency. Meanwhile, the reinsurer’s underwriting capacity is insufficient to meet the demand for diversifying catastrophe risk as well. In this context, catastrophe bonds as a typical representative of the new risk management tools emerges in the international insurance market are expected to deal with catastrophe risk through the deep integration of insurance market and capital market.Catastrophe bonds as a tool to connect the capital market and the insurance market is one of the major solutions to catastrophe risk securitization, Diversify risk through capital market has become an important means to deal with catastrophe risk globally. With the capital markets to diversify catastrophe risk, issuing catastrophe bonds can not only relieves the pressures of underwriting capacity faced by insurance companies, but also alleviates the financial burden of the state to compensate for catastrophe losses.China is a natural disaster-prone area, the annual economic losses caused by natural disaster are extremely serious. In the21st century, the direct economic losses caused by natural disasters have increased significantly, the annually average losses are up to330billion yuan between2000and2012. The tremendous losses imperial the healthy and sustainable development of the economy.In this regard, China needs to establish appropriate catastrophe insurance system to cope with catastrophic disasters.Catastrophe bonds as one of the effective means to solve catastrophe risk requires close attention to the new trends in the international insurance industry. Making a deep research in the operating mechanism and pricing of catastrophe bonds and exploring approaches that suit for China’s catastrophe bonds are not only conducive to the development of China’s insurance industry itself, but also of great significance to build a harmonious society and achieve sustainable and healthy development of our country.This analysis is mainly focused on the operating mechanism and pricing of catastrophe bonds. The current situation of catastrophe insurance market in China is introduced in detail at first, through analyzing the underwriting capacity of China’ Insurance market, catastrophe bonds are proposed to be a realistic choice to deal with catastrophe risk. According to overseas research on the operating mechanism and pricing of catastrophe bonds,we expect to establish an operating mode of catastrophe bonds that adapts to China’s national conditions. Then basing on this, a preliminary design of earthquake catastrophe bonds in China is conducted, and the loss distribution of earthquake is fitted as well. Mainly includes the following parts:The first part is the introduction, describes the background and meaning of this research, review the research literature at home and abroad in catastrophe risk insurability and reinsurance, the operation mechanism and pricing Mechanism of catastrophe bonds, and on this basis, put forward the research contents and methods, and the main innovation of this paper.The second part introduces the catastrophe insurance market, this paper analyzes China’s current compensation way, explain the catastrophe insurance system in China as well as the absence of underwriting capacity problem, put forward the necessity and feasibility of developing catastrophe bond in China is a realistic choice to deal with catastrophe risk in china.The third part introduces the catastrophe mechanism before and after the occurrence of catastrophe bonds, as well as the impact on the capital market investors, analysis of a variety of catastrophe bonds triggering mechanism and their advantages and disadvantages, introduces the main player in the market, finally introduced the international case.The fourth part analyzes the main factors influencing the catastrophe bonds pricing, such as different triggering mechanisms influence on the price of catastrophe bonds, relationship between catastrophe bond and capital market of other products, the impact of exchange and bond rating,mainly introduces the catastrophe bond pricing model of three classic, and a comparative analysis. In the fifth part of the earthquake as an example, carry on the preliminary design to China’s earthquake catastrophe bond, at the same time, as the sample using the earthquake loss data nearly twenty years, to simulate the seismic loss distribution and the amount of loss distribution.Finally, put forward in the reality of China’s national conditions, through the advanced foreign experience, methods and measures for the development of catastrophe insurance market in china.