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
In health insurance, the applicable average rate charged for a semiprivate room in the geographical area in which the charge is incurred. ...
Provision that excludes from coverage under Form No. 3: flood damage, except if the flood causes a fire, explosion, or theft; water damage from the backup of sewers; earthquake, except if ...
Costs associated with first-year expenses, claims expense, administrative expenses, and renewal expenses. ...
Chart published in 1868 by Sheppard Homans, an actuary with the Mutual Life Insurance Company of New York, based on insured lives from 1843 to 1858. Historically, it was widely used for ...
Insurance policy for which the required premium has been paid. ...
Circumstance in which no agent is servicing a debit. ...
Same as term Contingency reserve: percentage of total surplus retained, in insurance company operations, that serves as a reserve to cover unexpected losses as well as to cover the ...
Fee paid to an agent as compensation for his or her collecting premiums for debit insurance (home service insurance, industrial insurance). ...
Situation in which several liability insurance policies are in force to cover the same risk, thereby resulting in higher limits of coverage than is required to adequately insure the risk. ...
Have a question or comment?
We're here to help.