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
Eligible rollover distribution that is paid directly from an employee's employee benefit insurance plan to the employee's individual retirement account (IRA) or to another plan maintained ...
Systems composed of personal computers linked by a file server. These computers share software as well as databases that enable the risk manager access to information in a quick and ...
Person who engages an agent or broker for advice and possible purchase of insurance. ...
Liability coverage section of a simplified commercial lines portfolio policy (sclp). Provides for separate limits of coverage for general liability, fire legal liability, products and ...
Time limit on the deferred ownership of property such that, 21 years after the property owner dies, the deferred ownership of that property terminates. ...
Basic requirements of an employee benefit insurance plan such as minimum age and years of service with an employer. ...
Same as term Class: group of insureds with the same characteristics, established for rate-making purposes. For example, all wood-frame houses within 200 feet of a fire plug in the same ...
Automatic reinsurance that requires the insurer to transfer, and the re insurer to accept, a given percentage of every risk within a defined category of business written by the insurer. For ...
Actual price paid for property when it was acquired. The original cost might apply to a piece of jewelry, to a piece of equipment, or to a building. For insurance purposes, original cost is ...
Have a question or comment?
We're here to help.