A Study On Hull Insurance Securitization In China

Although it has been40years since the start of research on securitization of insurance risk, most of these studies are focused on the securitization of catastrophe risk, small amount of them involves longevity risk securitization and motor insurance securitization, hull insurance securitization is barely involved.The research framework is structured as follows:Chapter1is an introduction of background of this research and methods used in analysis as well as the significance of this study, then makes a review of relative studies conducted by scholars both domestic and abroad to pave the way for subsequent analysis.Chapter2describes the development process and characteristics of hull insurance at first, and then introduces the current development in China. It is found that the pricing of hull insurance is mainly leading by foreign reinsurance companies. Hull insurance securitization is a good choice for domestic insurance companies to improve the ability of risk management and pricing.Chapter3elaborates the securitization of hull insurance in China. First, the analysis points out that issuing hull insurance bonds is the optimal choice for hull insurance securitization. Then illustrates the feasibility of managing hull insurance risk by issuing hull insurance bonds. Then after, with reference to the operation of catastrophe bonds, the author illustrates the operation mode of hull insurance bonds. Finally, the research analyzes the benefits of hull insurance bonds at both micro and macro level.Chapter4proposes two designs of hull insurance bonds and presents them in detail. The first program is the hull insurance bonds that set total loss as the payment conditions; the second fixes the cumulative payment of insurance companies surpassing a certain amount as the payment conditions. To illustrate these two designs better, first sets a few fundamental assumptions, and then analyze the reasonableness of these basic assumptions. Under the fundamental assumptions, calculates by actual probability and approximate probability:1.the reinsurance premiums charged to insurers and the amount raised from investors by issuing bonds;2. maximum ROI and the probability of this situation;3. the probability of losing the entire principal amount.Considering the problems that may arise by the macro policy and financial market as well as the limitations of hull insurance itself, the last part of this paper puts forward a number of proposals to solve these issues.The main innovation of this paper lies in the following aspects:firstly, the securitization of insurance risk is introduced into the risk management of hull insurance, and this can improve the pricing ability and risk management of insurers. Secondly, using the principle of risk pooling and diversification, this research provides two sets of design of hull insurance bonds, and that may be of significance to innovate the risk management tools of hull insurance.