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
Qualified retirement plan under the internal revenue code Section 457 for employees of the states and political subdivisions within the states. ...
Coverage in the event an insured's negligent acts and/or omissions involving the construction of a new one- or two-family residential structure result in bodily injury and/or property ...
Policy used to provide the funds necessary for buy-and-sell agreements whereby an income payment or a series of income payments are paid to the buyer of the disabled partner's interest ...
Amount subtracted from an annuity or from mutual fund proceeds payable to an annuity owner or mutual fund owner to reflect expense fees described in the annuity contract or mutual fund ...
Factor considered in determining amount of life insurance to purchase in order that funds will be available to pay the emergency expenses following the death of a family member. ...
Pension plan format. After deciding how much to contribute, the employer can suspend, reduce, or discontinue contributions during the first 10 years only for reasons of business necessity; ...
Commission that is paid based on how profitable a particular type of business proves to be that is written by an agent. ...
Contractor's and Architect's Errors and Omissions Insurance, which also serves as a general liability policy for these professionals. ...
Attributes of a particular employee benefit plan. For example, a general characteristic of group life insurance is that the whole group is underwritten, not individual members. ...
Have a question or comment?
We're here to help.