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Conventional wisdom states that catastrophe risk securities show no or little correlation with stock and bond markets, and offer significant attractions to investors providing a good diversification of risks. This study examines the correlation between catastrophe risk securities and portfolios of other equities by analyzing catastrophe effects on the Japanese stock market.

Using catastrophe data from SwissRe Sigma publications and stock returns from the Pacific‐Basin Capital Markets database, this paper analyzes stock and abnormal returns in the Japanese stock market using event study methodology.

For the Japanese stock market as a whole, there is no significant catastrophe effect. The results indicate a significant negative correlation between catastrophe loss amount and the insurance industry's equity returns and abnormal returns, a significant positive correlation with the construction industry, but no significant correlation with the real estate industry. This paper also analyzes the impact of catastrophe causalities. The results show little evidence on the significance of these variables.

This study provides important insights to the insurance/reinsurance industry in the Japanese risk market for catastrophe property and mortality risk securitization and to investors who are interested in further improvement of their portfolio risk/return profile by including catastrophe risk securities.

Due to climate change and an increasing concentration of the world’s population in vulnerable areas, how to manage catastrophe risk efficiently and cover disaster losses fairly is still a universal dilemma.

This paper applies a law and economic approach.

China’s mechanism for managing catastrophic disaster risk is in many ways unique. It emphasizes government responsibilities and works well in many respects, especially in disaster emergency relief. Nonetheless, China’s mechanism which has the vestige of a centrally planned economy needs reform.

I propose a catastrophe insurance market-enhancing framework which marries the merits of both the market and government to manage catastrophe risks. There are three pillars of the framework: (i) sustaining a strong and capable government; (ii) government enhancement of the market, neither supplanting nor retarding it; (iii) legalizing the relationship between government and market to prevent government from undermining well-functioning market operations. A catastrophe insurance market-enhancing framework may provide insights for developing catastrophe insurance in China and other transitional nations.

First, this paper analyzes China’s mechanism for managing catastrophic disaster risks and China’s approach which emphasizes government responsibilities will shed light on solving how to manage catastrophe risk efficiently and cover disaster losses fairly. Second, this paper starts a broader discussion about government stimulation of developing catastrophe insurance and this framework can stimulate attention to solve the universal dilemma.

It is essential for the welfare and growth of a society that it is able to share risk efficiently in the economy. However, extreme events have increased enormously during the last decades, so that catastrophe risks seem to become uninsurable in a free-market economy. With insurance-linked securities (ILS) or catastrophe bonds (cat bonds), the limits of insurability can be ex-tended by using the resources of capital markets worldwide. Interestingly, to date the issuers of cat bonds must guarantee excessively high returns in order to attract investors from the financial markets. Therefore, the authors aim to discuss in this paper the hypothesis that at least parts of these excessively high returns can be explained by an individual innovation resistance to cat bonds.

In the first step, the authors examine the criteria for insurability of catastrophe risks and explore the potential reasons for lack of insurance, specifically for extreme events such as catastrophic environmental risks. The authors especially focus on the criteria which are considered to be problematic for the insurance of catastrophic events. In the next step, the authors discuss the new financial products “ILS” or “cat bonds” and analyze to what extent ILS represent an innovative opportunity to increase the insurability of catastrophe risks. Starting from the model of the consumer resistance by RAM, the authors consider different factors that can prevent the acceptance of ILS by private investors.

The authors found out that catastrophe risks do not really fulfil important actuarial criteria in order to be insurable. Thus, insurance exists only if risk can be transferred, not only to reinsurance companies but also to capital markets (through securitization or catastrophe options). In line with Ram's seminal model of consumer resistance, the authors assume that product-related, diffusion mechanism-related and psychographic factors influence individuals' resistance to cat bonds. In particular, the authors expect that perceptions of immorality influence private investors' decision-making. Within this context, Robin and Reidenbach's “Multi-dimensional ethics”-scale represents a possibility to assess perceptions of immorality.

In this paper, the authors provide a new approach to explain the excess spreads on cat bonds versus comparable corporate bonds. These abnormal high turns from cat bonds have been subject of intensive research in the last decade. To date, the insurance literature has identified “novelty premium”, “market size” and “cliff risk” as the reasons for the excess spreads. The authors assume that at least parts of these excessively high returns can be explained by an individual innovation resistance against ILS. In the authors' opinion, persuasive communication can be used to alleviate individual resistance towards ILS. The paper provides implications for management and suggestions for further research.

Property and casualty (“P&C”) insurance companies rely on “risk capital” to absorb large losses that unexpectedly deplete claims‐paying resources and reduce underwriting capacity. The purpose of this paper is to review the similarities and differences between two different types of risk capital raised by insurers to cover losses arising from natural catastrophes: internal risk capital provided by investors in insurance company debt and equity; and external risk capital provided by third parties. The paper also explores the distinctions between four types of external catastrophe risk capital: reinsurance, industry loss warranties, catastrophe derivatives, and insurance‐linked securities. Finally, how the credit crisis has impacted alternative sources of catastrophe risk capital in different ways is considered.

The discussion is based on the conceptual framework for analyzing risk capital developed by Merton and Perold.

In 2008, the P&C insurance industry was adversely affected by significant natural catastrophe‐related losses, floundering investments, and limited access to capital markets, all of which put upward pressure on catastrophe reinsurance premiums. But the influx of new risk capital that generally accompanies hardening markets has been slower than usual to occur in the wake of the credit crisis. Meanwhile, disparities between the relative costs and benefits of alternative sources of catastrophe risk capital are even more pronounced than usual.

Although many insurance companies focus on how much reinsurance to buy, this paper emphasizes that a more important question is how much risk capital to acquire from external parties (and in what form) vis‐à‐vis investors in the insurance company's own securities.

Catastrophe (CAT) events associated with natural catastrophes and man-made disasters cause profound impacts on the insurance industry. This research thus reviews the impact of CAT risk on the insurance industry and how traditional reinsurance and securitized risk-transfer instruments are used for managing CAT risk.

This research reviews the impact of CAT risk on the insurance industry and how traditional reinsurance and securitized risk-transfer instruments are used for managing CAT risk. Apart from many negative influences, CAT events can increase the net revenue of the insurance industry around CAT events and improve insurance demand over the post-CAT periods. The underwriting cycle of reinsurance causes inefficiencies in transferring CAT risks. Securitized risk-transfer instruments resolve some inefficiencies of the reinsurance market, but are subject to moral hazard, basis risk, credit risk, regulatory uncertainty, etc. The authors introduce some popular securitized solutions and use Merton's structural framework to demonstrate how to value these CAT-linked securities. The hybrid solutions by combining reinsurance with securitized CAT instruments are expected to offer promising applications for CAT risk management.

The authors introduce some popular securitized solutions and use Merton's structural framework to demonstrate how to value these CAT-linked securities. The hybrid solutions by combining reinsurance with securitized CAT instruments are expected to offer promising applications for CAT risk management.

This research reviews a broad array of impacts of CAT risks on the (re)insurance industry. CAT events challenge (re)insurance capacity and influence insurers' supply decisions and reconstruction costs in the aftermath of catastrophes. While losses from natural catastrophes are the primary threat to property–casualty insurers, the mortality risk posed by influenza pandemics is a leading CAT risk for life insurers. At the same time, natural catastrophes and man-made disasters cause distinct impacts on (re)insures. Man-made disasters can increase the correlation between insurance stocks and the overall market, and natural catastrophes reduce the above correlation. It should be noted that huge CAT losses can also improve (re)insurance demand during the postevent period and thus bring long-term effects to the (re)insurance industry.

Islands have long been discussed as refuges from global catastrophes; this paper will evaluate them systematically, discussing both the positives and negatives of islands as refuges. There are examples of isolated human communities surviving for thousands of years on places like Easter Island. Islands could provide protection against many low-level risks, notably including bio-risks. However, they are vulnerable to tsunamis, bird-transmitted diseases and other risks. This paper aims to explore how to use the advantages of islands for survival during global catastrophes.

Preliminary horizon scanning based on the application of the research principles established in the previous global catastrophic literature.

The large number of islands on Earth, and their diverse conditions, increase the chance that one of them will provide protection from a catastrophe. Additionally, this protection could be increased if an island was used as a base for a nuclear submarine refuge combined with underground bunkers and/or extremely long-term data storage. The requirements for survival on islands, their vulnerabilities and ways to mitigate and adapt to risks are explored. Several existing islands, suitable for the survival of different types of risk, timing and budgets, are examined. Islands suitable for different types of refuges and other island-like options that could also provide protection are also discussed.

The possible use of islands as refuges from social collapse and existential risks has not been previously examined systematically. This paper contributes to the expanding research on survival scenarios.

I build an equilibrium model trying to reconcile investor preferences with several features of the cat bond market. The driving force behind the model is a habit process, in that catastrophes are rare economic shocks that could bring investors closer to their subsistence level. The calibration requires shocks with an impact between −1% and −3% to explain a reasonable level of cat bond spreads. Such investor preferences are not only able to generate realistic cat bond returns and price comovement among different perils, but may also able to explain why cat bonds offer higher rewards compared to equally rated corporate bonds.

Insurance‐linked securities can benefit both issuers and investors; they supply insurance and reinsurance companies with additional risk capital at reasonable prices (with little or no credit risk), and supply excess returns to investors that are uncorrelated with the returns of other financial assets. This article explains the terminology of insurance and reinsurance, the structure of insurance‐linked securities, and provides an overview of major transactions. First, there is a discussion of how stochastic catastrophe modeling has been applied to assess the risk of natural catastrophes, including the reliability and validation of the risk models. Second, the authors compare the risk‐adjusted returns of recent securitizations on the basis of relative value. Compared with high‐yield bonds, catastrophe (“CAT”) bonds have wide spreads and very attractive Sharpe ratios. In fact, the risk‐adjusted returns on CAT bonds dominate high‐yield bonds. Furthermore, since natural catastrophe risk is essentially uncorrelated with market risk, high expected excess returns make CAT bonds high‐alpha assets. The authors illustrate this point and show that a relatively small allocation of insurance‐linked securities within a fixed income portfolio can enhance the expected return and simultaneously decrease risk, without significantly changing the skewness and kurtosis of the return distribution.

This article examines how reinsurance coupled with new financial instruments can expand coverage to areas exposed to catastrophe losses from natural disasters, and demonstrates how reinsurance and the catastrophe‐linked financial instruments can be combined to lower the price of protection from its current level. A simple example illustrates the relative advantages and disadvantages of pure catastrophic bonds and pure indemnity reinsurance in supporting a structure of payments contingent on certain extreme events occurring. The authors suggest ways to combine these two instruments using customized catastrophe indices to expand coverage and reduce the cost of protection. This article states six principles for designing catastrophic risk transfer systems and discusses practical issues for implementation, and then concludes with suggestions for future research.

One aspect of the growing issuance in catastrophe bonds is the increasing geographic diversity of coverage. Although catastrophe bonds initially focused on a single peril and territory, more recently they have been structured with independent multiple event triggers, differing according to peril and territory. This paper reviews the territorial development of catastrophe bonds and explores the geographical horizon for new issues.