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12.01.2012
CAT-DERIVATES
NEW WAY TO INSURE CATASTROPHE RISK

Daniel Meyer
Daniel Meyer

INTRODUCTION
 Increase of natural disasters since 1970
 Four times more a year from 100 up to 400 times

 Hurricane Andrew (1992) and Northridge earthquake
(1994) resulted in 30 billion USD in insured property
losses
 Possible rise of catastrophe losses up to 100 billion USD

 Decrease of losses caused by
 population growth
 urban conglomerations
 climatic change

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12.01.2012 Daniel Meyer

PROBLEM
 The money of the insurance market is not sufficient
 Traditional reinsurances are inappropriately

 100 billion USD correspond to 30% of the equity capital
of US insurance market
 The occurrence of natural disasters will definitely
increase

Solution:
 More efficient mechanism for financing CAT losses

 Need of a new source of capital
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SOLUTION FOR INSURANCE COMPANIES
 Transfer catastrophe risk to the capital stock market
 Attractive investment possibilities for new investors

 Need of new financial products:
 Cat-Bonds
 Cat-Options

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CAT-BONDS
 Simple finance product
 Issued by a insurance company

 fix payments addicted to a natural desaster

 Three characteristics if a special trigger point is
achieved:
 Loss of the whole money
 Decrease of the monthly payments
 No exposure payments anymore

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CAT-OPTIONS
 More complex Instrument
 Traded on a stock exchange

 Linked to a Catastrophic-Loss Index

 Limited amount of losses or gains

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CONCLUSION
 New ways to insure regions with high catastrophe risk
are needed
 The capital market is a good alternative to the insurance
market as a source of capital
 About 13 trillion USD
 Cat-Derivates are a good alternative for investors to
traditional financial products

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