Securitized Bond Transactions (securitizing Catastrophe Risk/Securitizing Insurance Risk)
Definition of "Securitized bond transactions (securitizing catastrophe risk/Securitizing insurance risk)"
Method of accessing capital by the insurance industry in order to hedge against a future catastrophic occurrence. The mechanism works as follows: Primary insurance company AJAX pays a premium to purchase a CATASTROPHE REINSURANCE contract from REINSURANCE company BJAX. Reinsurance company BJAX then sells its bonds in an amount equal to the catastrophe reinsurance contract issued to insurance company AJAX. The proceeds from the bonds sold by BJAX are then placed in a trust to securitize the reinsurance contract. Interest is earned on the proceeds placed in the trust; the proceeds are usually invested in United States Treasury issues. If AJAX does not have any reinsurance claims, the purchasers of the bonds receive the return of the amount they have invested (safely on deposit in the trust) plus interest earned. If AJAX does have a reinsurance claim, the claim is paid out of the trust with the payment coming from the initial amount invested in the bonds plus interest earned. The investors in the bonds incur a bond default. The rating of these bonds uses the same criteria as used for all types of bonds, whether corporate or government, that is the probability of default. Just like any other type of bond, whether corporate or government, the price of the bond and thus the yield increases or decreases subject to market conditions.
Popular Insurance Terms
Imprecise term still occasionally used by commercial or proprietary insurers to differentiate them from fraternal insurers. "Old line" was apparently meant to make these companies sound ...
Present value of a future sum of money to be paid at a stipulated future date. ...
Under social security, workers who have at least six quarters of earnings of adequate amount to qualify for credit of the last 13 quarters prior to the worker's death. If this is the case, ...
Device that connects a computer to a telephone line. This device permits the computer to communicate with other computers through the telephone system. ...
1890 law prohibiting monopolies and restraint of trade in interstate commerce. The Sherman Act was strengthened in 1914 with amendments known as the Clayton Act that added further ...
Insurance policy under which premiums are past due but the grace period has not expired. ...
Same as term Administrative Services Only: services provided in an employee benefit plan such as a pension plan. An employer provides the clerical staff to operate the plan, in effect ...
Coverage for shippers of certain radioactive materials, such as medical or commercial isotopes, for direct loss or damage by radioactive contamination; does not cover transport of ...
Coverage for damage to property resulting from riot or civil commotion. Riot is defined by most state laws as a violent disturbance involving three or more (in some states two or more) ...
Have a question or comment?
We're here to help.