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Article
Publication date: 13 August 2021

Yang Zhao, Jin-Ping Lee and Min-Teh Yu

Catastrophe (CAT) events associated with natural catastrophes and man-made disasters cause profound impacts on the insurance industry. This research thus reviews the…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Originality/value

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.

Details

China Finance Review International, vol. 11 no. 4
Type: Research Article
ISSN: 2044-1398

Keywords

Book part
Publication date: 17 December 2003

Jin-Ping Lee, Shih-Cheng Lee and Min-Teh Yu

We develop a model to estimate salary-based premiums for pension benefit guarantees by simultaneously considering a stochastic interest rate and three practical pension…

Abstract

We develop a model to estimate salary-based premiums for pension benefit guarantees by simultaneously considering a stochastic interest rate and three practical pension plan termination conditions. We show the relationship among premium rates, a plan’s funding level, sponsoring firm’s capital position, early lapse, and a participant’s years of service. We also show how the regulatory intervention policy interacts with a plan’s funding level and a sponsor’s capital position and how it affects the pension insurance cost.

Details

Research in Finance
Type: Book
ISBN: 978-1-84950-251-1

Book part
Publication date: 15 September 2017

Jin-Ping Lee, Edward M.H. Lin, Min-Teh Yu and Yang Zhao

This study develops a multi-period structural model to value bank subordinated debt (subdebt) under different regulatory policies. The model provides a complete framework…

Abstract

This study develops a multi-period structural model to value bank subordinated debt (subdebt) under different regulatory policies. The model provides a complete framework for analyzing how various factors, such as credit and interest rate risks, bank characteristics, and regulatory policies, affect subdebt prices and yield spreads. It finds that the implementation of Prompt Corrective Action (PCA) will raise subdebt prices and lower subdebt spreads, while capital forbearance will have the opposite effects. Also, subdebt spreads are less sensitive to bank risk when PCA is imposed than when capital forbearance occurs. The results of the paper suggest that enhancing market discipline through giving subdebt investors more rights to force timely reorganization of weak banks will reduce the subdebt spreads required by investors.

Details

Advances in Pacific Basin Business Economics and Finance
Type: Book
ISBN: 978-1-78743-409-7

Keywords

Book part
Publication date: 4 March 2008

Jin-Ping Lee

The new Basel Accord (known as Basel II) attempts to introduce more risk-sensitive capital requirements. We propose a multiperiod deposit insurance pricing model that…

Abstract

The new Basel Accord (known as Basel II) attempts to introduce more risk-sensitive capital requirements. We propose a multiperiod deposit insurance pricing model that incorporates specific regulatory capital requirements and the possibility of capital forbearance and moral hazard. We estimate the cost of deposit insurance under alternative regulation regimes based on the building block approach of the 1988 Basel Accord (known as Basel I) and internal model-based (IMB) capital regulation. In contrast to the building block of Basel I, Basel II's IMB capital regulation links more closely the capital requirement to a bank's actual risk. We develop a multiperiod pricing model while incorporating the effects of capital forbearance and moral hazard. The fairly-priced premium rates are computed by assuming that a bank's asset value follows a GARCH process. In contrast to previous studies based on the building block capital standard, we find that forbearance and the potential moral hazard behavior will not increase the cost of deposit insurance in the scheme of Basel II's IMB capital regulation.

Details

Research in Finance
Type: Book
ISBN: 978-1-84950-549-9

Content available
Book part
Publication date: 15 September 2017

Abstract

Details

Advances in Pacific Basin Business Economics and Finance
Type: Book
ISBN: 978-1-78743-409-7

Book part
Publication date: 17 December 2003

Abstract

Details

Research in Finance
Type: Book
ISBN: 978-1-84950-251-1

Book part
Publication date: 17 December 2003

Abstract

Details

Research in Finance
Type: Book
ISBN: 978-1-84950-251-1

Content available
Book part
Publication date: 4 March 2008

Abstract

Details

Research in Finance
Type: Book
ISBN: 978-1-84950-549-9

Content available
Article
Publication date: 21 November 2014

6

Abstract

Details

The Journal of Risk Finance, vol. 15 no. 5
Type: Research Article
ISSN: 1526-5943

Article
Publication date: 17 May 2019

Emanuel Leite Junior and Carlos Rodrigues

The purpose of this paper is to report a critical analysis of the plan recently launched by the Chinese Government for the development of the football industry in China…

Abstract

Purpose

The purpose of this paper is to report a critical analysis of the plan recently launched by the Chinese Government for the development of the football industry in China. The analysis encompasses the impact exerted by the new policy instrument on the Eurocentric trend that configured the power relations in the football realm, as well as the challenges raised by barriers deeply rooted in culture that Chinese authorities should face in order to foster pervasive change and thus create the conditions for success.

Design/methodology/approach

The analysis of the policy document has been carried out under the light of the theory of innovation, namely, the contributions of Peter Drucker, who looks at innovation as a means to foster change in the social and economic environment, inducing new patterns of behaviour and creating new habits. This theoretical framework provides ground to the analytical endeavour because the Chinese plan for football development presents the overall goal of shifting the habits of sporting practice and consumption.

Findings

The first and most visible “innovative” effect of the policy took the form of a shock provoking an unprecedented change in the geopolitics of football and the inherent disturbance in the traditional Eurocentric structure of football power relations. At the domestic level, the Chinese Government is assuming the “educating” role in order to change behaviour and habits, that is, to ensure the transformative power necessary to overcome barriers deeply rooted in culture. Accordingly, rather than the availability of financial resources, the capacity to materialise this pervasive switch in behaviour and habits in terms of football practice and consumption is the major challenge, the one of a social innovation endeavour.

Originality/value

The research reported in this paper provides an original and innovative approach to the analysis of a sports relevant public policy document, namely, because of the theoretical framework wrapping up the analytical endeavour.

Details

Sport, Business and Management: An International Journal, vol. 9 no. 1
Type: Research Article
ISSN: 2042-678X

Keywords

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