Study On The Distribution Of Flood Disaster Losses And The Pricing Of Flood Catastrophe Bonds In China

In recent years,floods have occurred frequently in China,which have caused serious threats and damage to the safety of people’s lives and property.How to prevent and resolve the risk of flood catastrophe and improve the ability of risk management and loss compensation of flood catastrophe is a subject of great practical significance.Combined with the actual situation of our country,it is difficult to fully compensate the flood catastrophe loss by relying mainly on government assistance and social relief.China urgently needs to establish a multilevel flood catastrophe loss allocation mechanism.The loss caused by flood catastrophe is large and the impact is wide,so the traditional catastrophe insurance is difficult to effectively disperse the catastrophe risk,and it is often difficult for insurance companies to bear huge flood catastrophe losses.Therefore,it is necessary to introduce catastrophe bonds to spread catastrophe risk by means of risk securitization.From the practice results of other countries,the issuance of catastrophe bonds can transfer the flood catastrophe risk to the capital market,give better play to the advantage of sufficient funds in the capital market,alleviate the financial pressure of catastrophe loss compensation,enhance the solvency and underwriting capacity of the insurance industry for catastrophe risk,and improve the level of flood catastrophe risk management in China.The development of catastrophe bonds in China started relatively late,and there is still a lack of experience in bond issuance.In practice,the focus and difficulty of catastrophe bond issuance lies in the pricing of catastrophe bonds.Too high pricing will lead to unattractive bonds and it is difficult to achieve the financing target;too low pricing will increase the financial burden of the issuer and it is difficult to achieve the effect of risk diversification and loss sharing.Therefore,the selection of appropriate pricing method,risk division and appropriate bond design is very important for the pricing of catastrophe bonds.In addition,because the flood catastrophe loss data has the characteristics of sharp peak and thick tail,it is difficult to fit the model,so the accuracy of loss distribution fitting directly determines the accuracy of catastrophe bond pricing.Based on the direct economic loss data of flood disasters in China from 1980 to 2021,this paper studies the distribution of flood losses in China,and further discusses the pricing of flood catastrophe bonds.When fitting the flood disaster loss distribution,this paper uses the POT model in the extreme value theory,focusing on the tail risk of flood catastrophe loss,which makes up for the defect of the traditional model in fitting the thick-tailed distribution.In the aspect of flood catastrophe risk measurement,this paper quantifies the catastrophe loss risk by using the method of value at risk.On the basis of fully considering the national conditions of our country,the flood catastrophe loss is stratified,and a more reasonable,multi-level and multisharing flood catastrophe loss allocation mechanism is constructed,which delineates the respective flood catastrophe loss intervals for the insurance industry,reinsurance industry,capital market and government.In addition,this paper further calculates the pure premium scale of flood catastrophe reinsurance.In the pricing of flood catastrophe bonds,this paper fully considers the different investment preferences of investors,and uses the Wang transformation pricing method to construct a hierarchical pricing model of flood catastrophe bonds.On this basis,a flood catastrophe bond is designed,and the issuance prices of different levels of bonds are given according to different risk levels.Based on the research conclusion,this paper puts forward some feasible suggestions at the end,hoping to provide some help for promoting the development of catastrophe bonds and improving the ability of catastrophe risk management in our country.