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
Provision in ocean marine cargo policies to limit an insurance company's liability for partial losses; the company has liability only for losses that exceed a stipulated percentage of the ...
Trust instrument that permits the owner of a residence (grantor) to transfer ownership of that residence with the grantor still being allowed to stay in that residence for a stipulated ...
Method of integrating an employee's Social Security or other retirement benefits with a qualified retirement plan. Some employers offset (reduce) retirement or disability income benefits ...
Same as term Fixed Dollar Annuity: annuity that guarantees that a specific sum of money will be paid in the future, usually as monthly income, to an annuitant. For example, a $1000-a-month ...
Coverage for an individual with a residual disability. Benefits are usually payable for the unused portion of the total disability benefit period up to age 65. If an individual is at least ...
Device that connects a computer to a telephone line. This device permits the computer to communicate with other computers through the telephone system. ...
Omissions from coverage found in products liability insurance. The policy does not provide coverage if the business manufactures a product that does not meet the level of performance as ...
To accumulate. For example, under one of the dividend options of a participating life insurance policy, dividends can accumulate at interest by leaving them with the insurance company; cash ...
Person who uses personal property such as an automobile with permission of an owner. For example, for insurance purposes, someone who uses an automobile with the owner's permission would be ...
Have a question or comment?
We're here to help.