1997 Reports

Study on the interactive approach between insurance and capital markets for catastrophe risks

Goto, Shigeyuki

Following the shortage of capacity in the reinsurance market after the disaster of Hurricane Andrew, the interactive approach between insurance and capital markets was started. This means the indication of liquidity of catastrophe exposure and possibility of arbitrage between both markets. In order to accelerate this movement we need to establish a common, standard practical base between both markets. However there are differences in pricing mechanisms and risk management techniques between both markets. Therefore this new development seems to take a complementary role, not a substitutional one.