DOI: 10.5176/2251-1911_CMCGS16.27
Authors: Yang-Che Wu, Shih-Kuei Lin and Jo-Yu Wang
Abstract: The present study discusses the effects of catastrophe bond (catbond) transferring risk on insurance company. Empirical experiments indicate that the cyclical trend model for global insured losses is best fit for a NatCat loss than any other static distributions. The results are used to develop a risk insurance model that sets up a premium formula, the cyclical claim and the cash flow of all involved parties under corporate income tax and no additional risk premium. The simulation results based on this model shows that catbond is a feasible option for smoothing risk because they can benefit all long-term involved parties, including insurance company shareholders, the insured and the bondholders.
Keywords: catastrophe bond, catastrophe risk, time diversification
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