Research On The Quota-share Determination Of Catastrophe Reinsurance Sidecar

The management of catastrophe risk has always been an important topic in the reinsurance industry.With the acceleration of urbanization and the change of natural environment,catastrophe losses become more and more serious,bringing huge pressure to the insurance and reinsurance industry.In reality,a large number of insurance innovations have been carried out in the reinsurance industry,which called Alternative Risk Transfer.One of them is the sidecar discussed in this paper.The 2004-2005 hurricane season was the catalyst for this reinsurance innovation vehicle to flourish.After shrinking during the 2008 financial crisis,the size of the reinsurance sidecar transaction increased after the financial crisis,which fully demonstrated the attraction of this reinsurance innovation to the capital market and insurance market in non-extreme situations.China's catastrophe risk management is still in the exploratory stage,and the international insurance innovation research mainly focuses on the research of catastrophe bonds and other mainstream financial products,while the new alternative risk transfer tools like sidecar have not been fully explored and studied.This paper intends to take the reinsurance sidecar as the research object,and by analyzing the characteristics of the whole transaction process,a method to determine the quota-share is proposed.At first,this paper introduces catastrophe risk and catastrophe loss.And the extreme value theory is introduced to fit the tail distribution.The structure,trading process and trading characteristics of sidecar are analyzed comprehensively,and it is concluded that the sidecar invested by the investors can be regarded as an active managed portfolio fund.Then,the information ratio,an indicator of fund performance evaluation,is introduced to determine the lower limit of the quota-share for reinsurance sidecar.A numerical example of this method is given based on the rational objectives of the reinsurance company.At the end of the paper,the prospect of sidecar and some enlightenment to China's catastrophe risk management are prospected.