Determining the appropriate compensation for the bearing of risk is a critical element in insurance pricing. The bearing of property catastrophe risk, and the required compensation for such high-layer risks, have become increasingly important topics in today’s insurance market. Recently developed methodologies in actuarial pricing have begun to use the capital markets to determine the required compensation.
The volume of insurance Linked Securities (ILS) available in the capital markets is growing. Catastrophe Bonds are one form of ILS. In this session, available catastrophe bond data from the capital markets will be used to quantify the cost of catastrophe risk for property insurance. Several applications will be presented, including quantifying risk loads and evaluating the cost of catastrophe reinsurance. In addition, practical considerations for implementation will be discussed.