Now showing 1 - 2 of 2
  • Publication
    Pricing in the Primary Market for Cat Bonds: New Empirical Evidence
    (Blackwell, 2016-11-01)
    We present empirical evidence from the primary market for cat bonds, which provides new insights concerning the prevailing pricing practice of these instruments. For this purpose, transactional information from a multitude of sources has been collected and cross-checked in order to compile a data set comprising virtually all cat bond tranches that were launched between June 1997 and December 2012. In order to identify the main determinants of the cat bond spread at issuance, a series of OLS regressions with heteroskedasticity and autocorrelation consistent standard errors is run. Our results confirm the expected loss as the most important factor. Apart from that, covered territory, sponsor, reinsurance cycle, and the spreads on comparably rated corporate bonds exhibit a major impact. Based on these findings, we then propose an econometric pricing model for cat bonds in the primary market that is applicable across territories, perils, and trigger types. It exhibits a robust fit across different calibration subsamples and achieves a higher in-sample and out-of-sample accuracy than several competing specifications that have been introduced in earlier work.
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    Scopus© Citations 61
  • Publication
    What Drives Insurers' Demand for Cat Bond Investments? Evidence from a Pan-European Survey
    (Palgrave Macmillan Ltd., 2013-07-10) ; ;
    Although catastrophe bonds are continuing to gain importance in today's risk transfer and capital markets, little is known about the decision-making processes that drive the demand for this aspiring asset class. In the paper at hand, we focus on one segment of the investing community. Our main research goal is to identify major determinants of the cat bond investment decision of insurance and reinsurance companies. For this purpose, we have conducted a comprehensive survey among senior executives in the European insurance industry. Evaluating the resulting data set by means of exploratory factor analysis and logistic regression methodology, we are able to show that the expertise and experience with regard to cat bonds, the perceived fit of the instrument with the prevailing asset and liability management strategy, as well as the applicable regulatory regime are significant drivers of an insurer's propensity to invest. These statistical findings are supported by further qualitative survey results and additional information from structured interviews with the investment managers of four large dedicated cat bond funds.
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    Scopus© Citations 9