Test_2

Take-Away idea

§ „Cheat sheet“ for cat bonds (A4 summary sheet with major facts)

Multiple Choice

What is cat insurance?

• A

• your mum

• your dad

• B

Slide 1

Q1: What is cat insurance?

Content

§ Explanation what cat insurance is; types

§ Focus: Property cat insurance

§ Importance increased due to climate change & property values

à Graph with increasing damages from climate change

Slide 2

Q2: What is the fundamental issue with cat insurance?

Content

§ Explain uninsurability of catastrophes [Mention Berlin & Explain Jaffee]

§ Primary vs. Reinsurer

§ Risk-bearing capacity

§ Conclude: New ways needed to close protection gap

à ART

Slide 3

Q3: What is Alternative Risk Transfer (= ART)?

Content

§ Explanation

§ Name Types

§ Most important: Cat Bonds

Slide 4

Q4: What are cat bonds?

Content

§ Explanation

§ Focus: Structure (use Appendix)

§ Nut shell: Cat bonds have potential to solve major issues associated with cat insurance;

à I.e., cat bonds could solve shortcomings of the cat insurance market a functioning market

Slide 5

Q5: Why are cat bonds an attractive instrument for (a) investors and (b) sponsors?

Content

§ Name advantages and disadvantages

§ Conclusion:

o With regard to advantages, supply and demand are expected to be high

Slide 6

No question

Content

§ Explain market development

§ Core idea: Despite numerous advantages market development was unexpectatly weak

Slide 7

Q: What could be advantages that have hampered the expansion of the cat bond market?

Content

§ Explain disadvantages

Slide 8

Conslusion I.

Content

§ Conclude

§ Outlook:

o Name decisive success factors (Von welchen Erfolgsfaktoren wird die Entwicklung im Wesentlichen

abhängen?)

§ Fragestellung beantworten: Why have cat bonds not yet replaced?

o More precisely: What role are the reinsurer´s playing?

o Name Wharton paper: They are among the largest issuers & investors

§ Thus:

1. Traditional reinsurance contracts are not repalced, but complemented by cat bonds (both offer

advantages)

2. Traditional reinsurers are not replaced either, but play a major role as an investor & sponsor of cat

bonds

Slide 8

Conslusion II.

Content

§ Overall: Protection gap remains large

§ Maybe catastrophes are an uninsurable risk after all (?)

§ Nonetheless, the problem must be solved, considering the increasing climate change etc.