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
Bodily or emotional injury resulting from physical or mental wound or shock. A traumatic injury is caused by something outside the person's body as opposed to a sickness or a disease. An ...
Special endorsement to personal automobile policy (pap) covering loss of records, tapes, and other sound equipment caused by an insured peril in an insured automobile. ...
Provision in workers compensation insurance under which an employee who incurs an injury in another state, and elects to come under the law of his home state, will retain coverage under the ...
Employer, association, labor union, or other group ...
Coverage for personal effects of a tourist, including apparel, books, toilet articles, watches, jewelry, luggage, portable typewriters, photographs and photography equipment and supplies. ...
Vesting, deferred or vesting, immediate under which the accrued benefits of the employee increase on a percentage basis (according to years of service and/or attained age) until 100% ...
Rule that provides four requirements for monitoring the independent agent distribution system: The insurance company must be involved in the training of the independent agent. The ...
Portion of a federal law that imposes a penalty excise tax on an excess benefit transaction of 25% of the excess benefit on the person from inside the organization (disqualified person) ...
Largest property and casualty insurance company trade association in the world (international membership)whose objectives include the service of its membership through positive legislation ...
Have a question or comment?
We're here to help.