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
Life insurance that pays the balance of a mortgage if the mortgagor (insured) dies. Coverage is usually in the form of decreasing term insurance, with the amount of coverage decreasing as ...
Initial reserve plus the terminal reserve divided by two for any year of valuation. ...
Circumstance under which several insurance policies cover an insured's property against damage or destruction, but since the limits of coverage, kinds of property, and perils covered are ...
Coverage for an insured who unknowingly accepts forged checks. ...
Same as term Accidental Death and Dismemberment Insurance: form of accident insurance that indemnifies or pays a stated benefit to insured or his/her beneficiary in the event of bodily ...
Coverage of two or more individuals with the death benefit payable at the last death. Premiums are significantly lower than for policies that insure one person, since the probability of ...
Maximum age of an applicant or insured beyond which an insurance company will not initially underwrite a risk or continue to insure it. For example, under some forms of renewable term life ...
Individual who possesses a unique ability essential to the continued success of a business firm. For example, this individual might have the technical knowledge necessary for research and ...
Physical, moral, or financial circumstance of a life insurance applicant that sets him or her apart from a physically, morally, and financially sound standard applicant. The underwriting ...
Have a question or comment?
We're here to help.