A Study On The Development And Application Of Catastrophe Bond In China’s Insurance Industry

Since the1990s, frequent global catastrophes have brought immense fear to people all over the world. It is of practical significance to probe into the utilization of capital market, after the mal-function of traditional insurance market, to disperse risks caused by catastrophes. Being a most rapidly-developed one among the product of insurance securitization, the catastrophe bond, thanks to its creation and introduction, has strengthened the underwriting capacity of insurance market as well as revitalized the capital market. While western developed countries have managed to the application of catastrophe bond, China has not yet passed the theoretic analysis and exploration stage. In order to realize the application of catastrophe bond in China, this dissertation demonstrated the operating characteristics of catastrophe bond and the competition among issuers, designed a bond pricing model and made a comparison of catastrophe bonds in different countries; further based on the conclusion of the necessity and feasibility of developing catastrophe bond in China, proposed issuing catastrophe bond in Chinese insurance industry and designed the pricing model of earthquake catastrophe bond.This dissertation is comprised of ten chapters---the first chapter is about introduction, the second chapter to the eighth chapter consist the key content of this dissertation. The second is the theoretic basis of the study. With the analysis of its feature and function, the third chapter presented the developing situation of catastrophe bond; meanwhile through the comparison of advantages and disadvantages between catastrophe bond and reinsurance, made an investigation of its issuing process and parties involved in. Chapter four introduced the competition among the issuers in light of the game model established by the issuers, which can be solved from the point of moral hazard existed between the issuers, in order to seek the result of the game playing among the issuers. Chapter five is about the pricing model and extension of catastrophe bond, which mainly made a comparison of pricing models among different catastrophe bonds, adding the role of morel into the traditional Monte Carlo method, thus brought forward a new kind of pricing model. The six chapter introduced cases of the development of catastrophe bond in different countries, from which China can draw upon from. A conclusion can be made from the study and analysis of the cases in the USA, Japan and Taiwan, that China should begin with developing insurance market and capital market, as well as establishing risk evaluation to promote catastrophe bond market. Chapter seven analyzed the necessity---the urgent need of developing insurance industry, an effective way of revitalizing the capital market; and the feasibility---provision whether in law, policy or market and technology, of developing catastrophe bond. The eighth chapter, investigation about how to develop catastrophe bond in China, studied on the factors that influence the development of catastrophe bond after analyzing that China is ready for its application and the affecting factors on that, further pointed out that the application of catastrophe bond in China should be strengthened through the improvement of financial market and the establishment of moral risk prevention system and the pricing mechanism of catastrophe bond, etc. In chapter nine, given the example of issuing a catastrophe bond against the earthquake risks, and with the selected data from samples, the loss probability and lose distributing, the issue volume and yield rate of bonds, as well as the issuing price is settled, while the application of pricing earthquake catastrophe bond.