Reinsurance, Securitization and Catastrophe Risks in China

This paper discusses reinsurance and securitization in managing catastrophe risks. Traditional reinsurance can effectively manage small risks of minor degree of correlation and can efficiently promote the information sharing between reinsurance cedants and reinsurers. However, with the increase of potential loss and risks correlation, the efficiency of reinsurance model will become very low, and cost of funds may become nonpaying. At this time, securitization can play its role, because it can transfer the risks to larger and more extensive capital market. Finally, this paper analyzes the feasibility of China’s insurance industry to carry out catastrophe bonds.