The Pricing Of Flood Reinsurance In China

Flood insurance is included in catastrophe insurance。The loss of flood occupies 40% in the whole calamity loss ,and it is one of the major calamity in human society,so expenditure of flood protection becomes the important burden in most countries'finance. However, The loss caused by floods, hurricanes and other catastrophic events is with strong positive correlation rather than independent of each other, which is contradictory against the insurance risk diversification basic theory "law of large numbers". In the meanwhile, floods, hurricanes and other catastrophic may fiercely impact of the insurance market, and then brings up chain reaction triggered claims which can impose a devastating effect on the insurance companies. Therefore, floods is one of the most difficult property insurance catastrophe to cope with all around the world.Flood reinsurance pricing has long attracted much attention in the catastrophic flood insurance research. The reason is that on the one hand the reinsurance can amplify the underwriting capacity of the independent property insurer which can only underwriting the small risks such as fire, theft to a large extend that covering catastrophic accidents such as earthquakes, typhoons, floods, etc; On the other hand, compared to hurricanes, earthquakes and other "low-frequency, high-severity" catastrophic risk, floods has the "double high" property of high-frequency, high-severity and its notable feature is sudden and devastating. This makes the general insurance pricing methods could not be applied to flood reinsurance pricing which must fit its own risk characteristics. Therefore, how to make the flood reinsurance pricing scientific and reasonable has long attracted much attention from academics, insurance companies and regulatory institutions.First, on the basis of the previous research , this paper describes the main form of reinsurance catastrophic insurance and lists catastrophe reinsurance operations around the world. Through analyzing and summarizing these examples, this paper comes up with the optimum flood re-insurance method for China.Then, starting with the reality of China's flood situation and by comparing excess-loss reinsurance and stop-loss reinsurance, this paper gets the conclusion that excess-loss reinsurance is more suitable for our country. On the basis of determinde re-insurance method, this paper makes a further comparison to confirm the application of risk exposure analysis as reinsurance pricing method. Thus, the theoretical framework of this paper is erected.Finally, by taking the investigation of the X County as an example, this paper gets the biggest flood losses exceeding probability curve though making detailed description of the data acquisition and summarized, building up models and simulating testing. Then by using this curve this paper provids valuable data information for the determination of retention and capacity, and expounds the process of getting retention and capacity results. DFA is also used to simulate the supplementary of insurance premiums and loss status. Combinating the insurance companies's risk exposure curve, this paoer finally gets the net reinsurance risk premiums.