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
Agreement under which an insurance company promises to pay all compensation and all benefits required of an insured employer under the workers compensation act of the state or states listed ...
Accounting method of establishing data on an annual basis. ...
Refers to the insured or reinsured paying premiums into an account at a commercial bank that will be used to pay for future or past losses. Portions of the premiums not required to pay for ...
Company not licensed by a particular state to sell and service insurance policies within that state. ...
Arrangement, often funded by life insurance, to continue an employee's salary in the form of payments to a beneficiary for a certain period after the employee's death. The employer itself ...
Insurance on the life of the employee, paid for by the company, with the company being the beneficiary under the policy. This insurance vehicle is being used more and more to fund ...
Total estimated cost incurred by a person or persons, a family, or a business resulting from the death or disability of a wage earner (key employee), damage or destruction of property, ...
Organization founded in 1993, the thesis of which is to apply quality management principles to insurance functions. To this end, the organization is involved in insurance industry-wide ...
Coverage in the event a safe of a business is forceably entered, either on or off the premises, and property is stolen from the safe. Also covered is damage to the premises during actual or ...
Have a question or comment?
We're here to help.