A Dynamic Model of Extreme Risk Coverage : Resilience and Efficiency in the Global Reinsurance Market
This paper presents a dynamic model of the reinsurance market for catastrophe risks. The model is based on the classical capacity-constraint assumption. Reinsurers choose every year the quantity of risk they cover and the level of external capital...
| Main Authors: | , , |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
|
| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110922160728 http://hdl.handle.net/10986/3571 |
| id |
okr-10986-3571 |
|---|---|
| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ADVERSE SELECTION AGENTS AGGREGATE DEMAND ALLOCATION AMOUNT OF CAPITAL AMOUNT OF RISK ASSURANCE BANK POLICY BANKRUPTCY BANKRUPTCY RISK BUDGETING BUSINESS OPPORTUNITIES BUSINESS RISKS BUY BACK BUY BACKS CAPACITY CONSTRAINT CAPACITY CONSTRAINTS CAPITAL ALLOCATION CAPITAL COSTS CAPITAL MARKET CAPITAL MOVEMENTS CAPITAL STRUCTURE CAPITALIZATION CAPITALIZATIONS CASUALTY INSURANCE CATASTROPHE BONDS CATASTROPHE INSURANCE CATASTROPHE REINSURANCE CATASTROPHES CATASTROPHIC RISKS CEDANT CEDANTS CEDING INSURER CLIMATE CLIMATE CHANGE CLIMATE EXTREMES COINSURANCE CORPORATE GOVERNANCE COST OF CAPITAL COST OF EQUITY COST OF REINSURANCE COVERAGE DEBT DEFAULT PROBABILITIES DEFAULT PROBABILITY DEFAULT RISK DEMAND ELASTICITY DEMAND FUNCTION DISASTERS DIVIDEND DYNAMIC MODEL EARNED PREMIUM ECONOMIC GROWTH ECONOMIC THEORY EQUILIBRIUM PRICE EQUITY CAPITAL EXPOSURE EXTREME EVENT EXTREME EVENTS FAIR GLOBAL INSURANCE GLOBAL MARKET GLOBAL REINSURANCE GLOBAL REINSURANCE MARKET GUARANTY FUNDS HOLDING HURRICANE HURRICANES ILLIQUIDITY INDEMNITY INSTRUMENT INSURANCE COMPANIES INSURANCE INDUSTRY INSURANCE MARKETS INSURANCE REGULATION INSURANCE SECTOR INSURED LOSSES INTERNATIONAL BANK IPO LIABILITY LIABILITY SIDE LIMITED LIABILITY LONG-TERM COST LOWER PRICES MARKET BEHAVIOR MARKET CAP MARKET CAPITALIZATION MARKET CONDITIONS MARKET DATA MARKET DEMAND MARKET EFFICIENCY MARKET EQUILIBRIUM MARKET POWER MARKET PRICE MARKET PRICES MARKET RISK MARKET RISKS MARKET SEGMENTATION MARKET SHARE MARKET SHARES MARKET STRUCTURE MARKET SUPPLY MORAL HAZARD NATURAL DISASTERS OLIGOPOLISTIC MARKET OLIGOPOLY OUTPUT OUTPUTS PERFECT INFORMATION POLICYHOLDERS PORTFOLIO PREMIUMS PRICE INCREASES PRICE INDEX PROBABILITY OF DEFAULT PROBABILITY OF DEFAULTS PROGRAMS PROPORTIONAL REINSURANCE PUBLIC POLICY RATE OF RETURN RATES REGULATOR REGULATORY CONSTRAINT REGULATORY REQUIREMENTS REINSURANCE REINSURANCE CAPACITY REINSURANCE COMPANIES REINSURANCE CONTRACTS REINSURANCE MARKETS REINSURERS RETROCESSION RETURN RISK AVERSION RISK EVALUATION RISK MANAGEMENT RISK MANAGEMENT TOOL RISK OF DEFAULT RISK PREMIUM RISK SHARING RISK-FREE INVESTMENTS SCENARIOS SECURITIES SENSITIVITY ANALYSES SHAREHOLDER SHAREHOLDERS SOLVENCY STORM SURGE SURPLUS SUSTAINABLE DEVELOPMENT SYSTEMIC RISK TREATIES TREATY UNDERWRITING |
| spellingShingle |
ADVERSE SELECTION AGENTS AGGREGATE DEMAND ALLOCATION AMOUNT OF CAPITAL AMOUNT OF RISK ASSURANCE BANK POLICY BANKRUPTCY BANKRUPTCY RISK BUDGETING BUSINESS OPPORTUNITIES BUSINESS RISKS BUY BACK BUY BACKS CAPACITY CONSTRAINT CAPACITY CONSTRAINTS CAPITAL ALLOCATION CAPITAL COSTS CAPITAL MARKET CAPITAL MOVEMENTS CAPITAL STRUCTURE CAPITALIZATION CAPITALIZATIONS CASUALTY INSURANCE CATASTROPHE BONDS CATASTROPHE INSURANCE CATASTROPHE REINSURANCE CATASTROPHES CATASTROPHIC RISKS CEDANT CEDANTS CEDING INSURER CLIMATE CLIMATE CHANGE CLIMATE EXTREMES COINSURANCE CORPORATE GOVERNANCE COST OF CAPITAL COST OF EQUITY COST OF REINSURANCE COVERAGE DEBT DEFAULT PROBABILITIES DEFAULT PROBABILITY DEFAULT RISK DEMAND ELASTICITY DEMAND FUNCTION DISASTERS DIVIDEND DYNAMIC MODEL EARNED PREMIUM ECONOMIC GROWTH ECONOMIC THEORY EQUILIBRIUM PRICE EQUITY CAPITAL EXPOSURE EXTREME EVENT EXTREME EVENTS FAIR GLOBAL INSURANCE GLOBAL MARKET GLOBAL REINSURANCE GLOBAL REINSURANCE MARKET GUARANTY FUNDS HOLDING HURRICANE HURRICANES ILLIQUIDITY INDEMNITY INSTRUMENT INSURANCE COMPANIES INSURANCE INDUSTRY INSURANCE MARKETS INSURANCE REGULATION INSURANCE SECTOR INSURED LOSSES INTERNATIONAL BANK IPO LIABILITY LIABILITY SIDE LIMITED LIABILITY LONG-TERM COST LOWER PRICES MARKET BEHAVIOR MARKET CAP MARKET CAPITALIZATION MARKET CONDITIONS MARKET DATA MARKET DEMAND MARKET EFFICIENCY MARKET EQUILIBRIUM MARKET POWER MARKET PRICE MARKET PRICES MARKET RISK MARKET RISKS MARKET SEGMENTATION MARKET SHARE MARKET SHARES MARKET STRUCTURE MARKET SUPPLY MORAL HAZARD NATURAL DISASTERS OLIGOPOLISTIC MARKET OLIGOPOLY OUTPUT OUTPUTS PERFECT INFORMATION POLICYHOLDERS PORTFOLIO PREMIUMS PRICE INCREASES PRICE INDEX PROBABILITY OF DEFAULT PROBABILITY OF DEFAULTS PROGRAMS PROPORTIONAL REINSURANCE PUBLIC POLICY RATE OF RETURN RATES REGULATOR REGULATORY CONSTRAINT REGULATORY REQUIREMENTS REINSURANCE REINSURANCE CAPACITY REINSURANCE COMPANIES REINSURANCE CONTRACTS REINSURANCE MARKETS REINSURERS RETROCESSION RETURN RISK AVERSION RISK EVALUATION RISK MANAGEMENT RISK MANAGEMENT TOOL RISK OF DEFAULT RISK PREMIUM RISK SHARING RISK-FREE INVESTMENTS SCENARIOS SECURITIES SENSITIVITY ANALYSES SHAREHOLDER SHAREHOLDERS SOLVENCY STORM SURGE SURPLUS SUSTAINABLE DEVELOPMENT SYSTEMIC RISK TREATIES TREATY UNDERWRITING Lemoyne de Forges, Sabine Bibas, Ruben Hallegatte, Stephane A Dynamic Model of Extreme Risk Coverage : Resilience and Efficiency in the Global Reinsurance Market |
| geographic_facet |
The World Region The World Region |
| relation |
Policy Research working paper ; no. WPS 5807 |
| description |
This paper presents a dynamic model of
the reinsurance market for catastrophe risks. The model is
based on the classical capacity-constraint assumption.
Reinsurers choose every year the quantity of risk they cover
and the level of external capital they raise to cover these
risks. The model exhibits time dependency and reproduces a
market dynamics that shares many features with the real
market. In particular, market price increases and
reinsurance coverage decreases after large shocks, and a
series of smaller losses may have a deeper impact than one
larger loss. There is a significant oligopoly effect
reducing reinsurance supply, and the market is segregated
into strategic large actors that influence market prices and
price-taker smaller firms. A regulation trade-off between
market efficiency and resilience is identified and
quantified: improving the ability of the market to cope with
exceptional events increases the cost of reinsurance. This
model provides an interesting basis to analyze further
capacity needs for the insurance industry in view of growing
worldwide exposure to catastrophic risks and climate change. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Lemoyne de Forges, Sabine Bibas, Ruben Hallegatte, Stephane |
| author_facet |
Lemoyne de Forges, Sabine Bibas, Ruben Hallegatte, Stephane |
| author_sort |
Lemoyne de Forges, Sabine |
| title |
A Dynamic Model of Extreme Risk Coverage : Resilience and Efficiency in the Global Reinsurance Market |
| title_short |
A Dynamic Model of Extreme Risk Coverage : Resilience and Efficiency in the Global Reinsurance Market |
| title_full |
A Dynamic Model of Extreme Risk Coverage : Resilience and Efficiency in the Global Reinsurance Market |
| title_fullStr |
A Dynamic Model of Extreme Risk Coverage : Resilience and Efficiency in the Global Reinsurance Market |
| title_full_unstemmed |
A Dynamic Model of Extreme Risk Coverage : Resilience and Efficiency in the Global Reinsurance Market |
| title_sort |
dynamic model of extreme risk coverage : resilience and efficiency in the global reinsurance market |
| publishDate |
2012 |
| url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110922160728 http://hdl.handle.net/10986/3571 |
| _version_ |
1764387256712298496 |
| spelling |
okr-10986-35712021-04-23T14:02:10Z A Dynamic Model of Extreme Risk Coverage : Resilience and Efficiency in the Global Reinsurance Market Lemoyne de Forges, Sabine Bibas, Ruben Hallegatte, Stephane ADVERSE SELECTION AGENTS AGGREGATE DEMAND ALLOCATION AMOUNT OF CAPITAL AMOUNT OF RISK ASSURANCE BANK POLICY BANKRUPTCY BANKRUPTCY RISK BUDGETING BUSINESS OPPORTUNITIES BUSINESS RISKS BUY BACK BUY BACKS CAPACITY CONSTRAINT CAPACITY CONSTRAINTS CAPITAL ALLOCATION CAPITAL COSTS CAPITAL MARKET CAPITAL MOVEMENTS CAPITAL STRUCTURE CAPITALIZATION CAPITALIZATIONS CASUALTY INSURANCE CATASTROPHE BONDS CATASTROPHE INSURANCE CATASTROPHE REINSURANCE CATASTROPHES CATASTROPHIC RISKS CEDANT CEDANTS CEDING INSURER CLIMATE CLIMATE CHANGE CLIMATE EXTREMES COINSURANCE CORPORATE GOVERNANCE COST OF CAPITAL COST OF EQUITY COST OF REINSURANCE COVERAGE DEBT DEFAULT PROBABILITIES DEFAULT PROBABILITY DEFAULT RISK DEMAND ELASTICITY DEMAND FUNCTION DISASTERS DIVIDEND DYNAMIC MODEL EARNED PREMIUM ECONOMIC GROWTH ECONOMIC THEORY EQUILIBRIUM PRICE EQUITY CAPITAL EXPOSURE EXTREME EVENT EXTREME EVENTS FAIR GLOBAL INSURANCE GLOBAL MARKET GLOBAL REINSURANCE GLOBAL REINSURANCE MARKET GUARANTY FUNDS HOLDING HURRICANE HURRICANES ILLIQUIDITY INDEMNITY INSTRUMENT INSURANCE COMPANIES INSURANCE INDUSTRY INSURANCE MARKETS INSURANCE REGULATION INSURANCE SECTOR INSURED LOSSES INTERNATIONAL BANK IPO LIABILITY LIABILITY SIDE LIMITED LIABILITY LONG-TERM COST LOWER PRICES MARKET BEHAVIOR MARKET CAP MARKET CAPITALIZATION MARKET CONDITIONS MARKET DATA MARKET DEMAND MARKET EFFICIENCY MARKET EQUILIBRIUM MARKET POWER MARKET PRICE MARKET PRICES MARKET RISK MARKET RISKS MARKET SEGMENTATION MARKET SHARE MARKET SHARES MARKET STRUCTURE MARKET SUPPLY MORAL HAZARD NATURAL DISASTERS OLIGOPOLISTIC MARKET OLIGOPOLY OUTPUT OUTPUTS PERFECT INFORMATION POLICYHOLDERS PORTFOLIO PREMIUMS PRICE INCREASES PRICE INDEX PROBABILITY OF DEFAULT PROBABILITY OF DEFAULTS PROGRAMS PROPORTIONAL REINSURANCE PUBLIC POLICY RATE OF RETURN RATES REGULATOR REGULATORY CONSTRAINT REGULATORY REQUIREMENTS REINSURANCE REINSURANCE CAPACITY REINSURANCE COMPANIES REINSURANCE CONTRACTS REINSURANCE MARKETS REINSURERS RETROCESSION RETURN RISK AVERSION RISK EVALUATION RISK MANAGEMENT RISK MANAGEMENT TOOL RISK OF DEFAULT RISK PREMIUM RISK SHARING RISK-FREE INVESTMENTS SCENARIOS SECURITIES SENSITIVITY ANALYSES SHAREHOLDER SHAREHOLDERS SOLVENCY STORM SURGE SURPLUS SUSTAINABLE DEVELOPMENT SYSTEMIC RISK TREATIES TREATY UNDERWRITING This paper presents a dynamic model of the reinsurance market for catastrophe risks. The model is based on the classical capacity-constraint assumption. Reinsurers choose every year the quantity of risk they cover and the level of external capital they raise to cover these risks. The model exhibits time dependency and reproduces a market dynamics that shares many features with the real market. In particular, market price increases and reinsurance coverage decreases after large shocks, and a series of smaller losses may have a deeper impact than one larger loss. There is a significant oligopoly effect reducing reinsurance supply, and the market is segregated into strategic large actors that influence market prices and price-taker smaller firms. A regulation trade-off between market efficiency and resilience is identified and quantified: improving the ability of the market to cope with exceptional events increases the cost of reinsurance. This model provides an interesting basis to analyze further capacity needs for the insurance industry in view of growing worldwide exposure to catastrophic risks and climate change. 2012-03-19T18:04:47Z 2012-03-19T18:04:47Z 2011-09-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110922160728 http://hdl.handle.net/10986/3571 English Policy Research working paper ; no. WPS 5807 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region The World Region |