Research On Insurance Risk Securitization

Since 1990s, catastrophe occurred more frequently around us, especially floods, which basically happens every year and its losses are growing. For example, China’s Yangtze River and Songhua River flood occurred and caused great losses of life and properties in 1998. In China, it is the main to cover there losses by payment from government which is a single financial subsidies. This activity makes the government should spend large sums of money which belong to state finance against disaster. To some extent, the growth of our economy is affected. Insurance companies, which afford auxiliary liabilities of compensation, usually adopt reserve fund system, the most commonly used method. The company must prepare enough reserve to prevent possible catastrophic losses, which will make the insurance companies often difficult to use funds for investment, in order to gain profits, and influence the normal operation of the capital chain. On the other hand, taking reinsurance system, if catastrophic risk occurs, solvency has also been a major challenge, and even lead to bankruptcy of the company. At the same time, the securities market has undergone a rapid development. Asset securitization theory has been widely applied in practice. Then, gradually rising approach to decentralize risks is advanced by the catastrophe risk securitization, which will successfully transfer the risk to well-developed capital market which has strong strength. This enables the catastrophic risk to become investment products to attract attentions of many investors.The securitization of risk as an important innovation of Risk management has been successfully applied in the international market, therefore, both foreign successful experiences and great progress of financial innovation in the our country, strongly supports developing way of catastrophe risk securitization in our country and provides the solid safeguard. Pricing is one of the most important tasks in financial research. high-level of prices will discourage investors, while the low-level of prices will cause losses of company. Therefore, the success of issuances of securities of catastrophe risk securitization depends on proper pricing which is key role. First, the definition of the catastrophe is introduced, the development of domestic and international risk securitization process is described, given the successful experience of foreign countries, the basic national conditions of China-based catastrophe risk securitization, the security of the need for the implementation of catastrophic risk and feasibility is analyzed, product designing progress of securitization of the risk is given, the special significance of the main sectors and securities products pricing. Then, in we have committed empirical analysis of the insurance risk securitization, based on Chinese data including several times of floods (loss of 100 billion yuan) between 1954-2010, and fitted the loss distribution. Also, we use rate of Our 4-year Treasury bill and employ binary tree pricing model to obtain market yields. Third, louberg bond pricing theory is used to price bond products of floods in China existing risk debt products is compared with and logical conclusion of pricing is. Finally, we explore the securitization progress of our country i, and problems may be encountered during this period and some solutions to solve these problems and so on.Catastrophe risk securitization will become one of the most important risk management tool, which is the current development trends. Reasonable and accurate pricing is key role to determine future of products in financial markets. This paper provides the necessary guideline for the pricing of catastrophe risk securitization.