CAT Bonds als Anlageinstrument für OGAW-Fonds

Zusammenfassung CAT Bonds (Katastrophenanleihen) verbriefen das Risiko einer (Natur-)Katastrophe in Form eine Anleihe. Dies ermöglicht es insbesondere Versicherungsunternehmen, Risiken über den Kapitalmarkt zu streuen, wodurch zusätzliche, volkswirtschaftlich benötigte Versicherungskapazitäten aufgebaut werden können. Investoren profitieren von Diversifikationsvorteilen und einer vergleichsweise hohen Rendite. Obwohl der Markt für CAT Bonds stetig wächst, spielen CAT Bonds als Vermögensanlage im Asset Management bisher nur eine untergeordnete Rolle. Dies hat im Fall von offenen Investmentfonds in Form von Organismen für gemeinsame Anlagen in Wertpapiere (OGAW) regulatorische Gründe. Nach Ansicht der BaFin sollen CAT Bonds keine erwerbbaren Anlageinstrumente für einen OGAW darstellen. Der Beitrag nimmt dies zum Anlass, der Frage nachzugehen, in welche Kategorie von Finanzinstrumenten CAT Bonds im KAGB normativ einzuordnen sind, womit zugleich grundlegende konzeptionelle Fragen der OGAW-Regulierung aufgeworfen werden.

Decomposition of Natural Catastrophe Risks: Insurability Using Parametric CAT Bonds

Nat Cat risks are not insurable by traditional insurance mainly because of producing highly correlated losses. The source of such correlation among buildings of a region subject to a natural hazard is discussed. A decomposition method is proposed to split Nat Cat risk into idiosyncratic (and hence insurable) risk and systematic risk (carrying the correlated part). It is explained that the systematic risk can be transferred to capital markets using a set of parametric CAT bonds. Premium calculation is presented for insuring the decomposed risk. Portfolio risk-return trade-off measures for investing on the parametric CAT bond are derived. Multi-regional and multi-hazard parametric CAT bonds are introduced to reduce the risk of the investment. The methodology is applied on a region with about 3000 residential buildings subject to flood hazards.

Risk transfer beyond reinsurance: the added value of CAT bonds

Reinsurance and CAT bonds are two alternative risk management instruments used by insurance companies. Insurers should be indifferent between the two instruments in a perfect capital market. However, the theoretical literature suggests that insured risk characteristics and market imperfections may influence the effectiveness and efficiency of reinsurance relative to CAT bonds. CAT bonds may add value to insurers’ risk management strategies and may therefore substitute for reinsurance. Our study is the first to empirically analyse if and under what circumstances CAT bonds can substitute for traditional reinsurance. Our analysis of a comprehensive data set comprising U.S. P&C insurers’ financial statements and CAT bond use shows that insurance companies’ choice of risk management instruments is not arbitrary. We find that the added value of CAT bonds mainly stems from non-indemnity bonds and reveal that (non-indemnity) CAT bonds are valuable under high reinsurer default risk, low basis risk and in high-risk layers.

The Relationship Between Cat Bond Market and Other Financial Asset Markets: Evidence from Cointegration Tests

This study examines the relationship between Cat Bonds market and the other financial markets. Precisely, cointegration tests (the Engle and Granger’s methodology) were applied on weekly data of five indexes over the period 2012- 2019 to test for the existence of a long-run dynamic equilibrium relationship between Cat Bonds market and four financial markets, namely, Insurance Linked Securities (ILS) market, S&P 500 (first stock market), MSCI (second stock market) and Corporate Bonds market. In addition, a comparative analysis correlation vs cointegration was conducted to verify whether Cat Bonds can be really considered as zero-beta assets in the short-run (correlation) as well as the long-run (cointegration). For correlation analysis we employed three correlation coefficients (Pearson’s Correlation Coefficient, Spearman’s Rank Correlation Coefficient and Kendall's Rank Correlation Coefficient). Overall, the main findings of this study showed that in the short-run, Cat Bonds are partially zero-beta assets while over the long-run they are entirely zero-beta assets. Such results will be of great importance for investors in their decision choice between a short strategy or a long strategy in Cat Bonds’ investing.

A simulation of the insurance industry: the problem of risk model homogeneity

We develop an agent-based simulation of the catastrophe insurance and reinsurance industry and use it to study the problem of risk model homogeneity. The model simulates the balance sheets of insurance firms, who collect premiums from clients in return for insuring them against intermittent, heavy-tailed risks. Firms manage their capital and pay dividends to their investors and use either reinsurance contracts or cat bonds to hedge their tail risk. The model generates plausible time series of profits and losses and recovers stylized facts, such as the insurance cycle and the emergence of asymmetric firm size distributions. We use the model to investigate the problem of risk model homogeneity. Under the European regulatory framework Solvency II, insurance companies are required to use only certified risk models. This has led to a situation in which only a few firms provide risk models, creating a systemic fragility to the errors in these models. We demonstrate that using too few models increases the risk of nonpayment and default while lowering profits for the industry as a whole. The presence of the reinsurance industry ameliorates the problem but does not remove it. Our results suggest that it would be valuable for regulators to incentivize model diversity. The framework we develop here provides a first step toward a simulation model of the insurance industry, which could be used to test policies and strategies for capital management.

Global Catastrophe Bond Market and the Prospects of Its Formation in the Russian Federation

The article is devoted to the development of instruments for catastrophe risk financing. The state of the global market for disaster risk financing is analyzed in order to identify the main development trends and the possibilities of using conceptual approaches in the Russian practice of the financial market. It is proven that the development of the catastrophe bond market has prospects in conditions of permanent instability, since catastrophe bonds are unique and highly attractive due to the lack of correlation with macroeconomic events. It is suggested that the instruments of catastrophe risk financing can be considered in the context of the development of sustainable finance. The paper identifies the main problems slowing down the development of the Russian catastrophe bond market, and formulates proposals aimed at developing the market for insurance-linked securities (ILS) in the Russian Federation. Pilot CAT bonds emission prospectuses should be based on structured bonds, with elements of a subordinated bond. There is a need to introduce into the Russian legal field a term defining ILS as a category. It is proposed to register special purpose vehicles (SPVs) and catastrophe funds in Russian offshores. The Russian analogue of catastrophe funds should be a closed-end investment fund with high funding for qualified investors. It is proposed to update the formula for calculating the creation of and the procedure for using reserve funds, in particular with the use of catastrophe risk financing tools. A pilot issue of CAT bonds is proposed to be conducted on behalf of VEB.RF, as bonds sponsoring regions exposed to high natural risks. In the process of developing socially responsible investor practice and tools for socially responsible investments, it is suggested to establish a Russian “Green Index” and to create green ETFs in Russia. Due diligence (DD) approaches are recommended for decisions on issuing catastrophe bonds.

Cat bonds market: Legal framework and perspectives

The paper analyses the legal aspects of the status of the catastrophe bonds market. Cat bonds are innovative instruments of securitization, which play a significant role in the financing of natural disasters. Some of the advantages of catastrophe bonds issue are the possibility of expanding risk transfer, reducing credit risk exposure and improving capital management. The aim of research is to point out the possible ways of efficient financing of catastrophic losses, such as the issue of catastrophe bonds. The paper will analyse the principal characteristics of cat bonds, as a significant instrument in connecting capital market with the insurance market. The author considered the current situation at the international and national level. Considering the tendencies in the international capital market, the author concluded that in the Republic of Serbia there is a legal gap and lack of harmonization of the existing legislation, which prevents the issue of catastrophe bonds.