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Pricing Excess-of-Loss Reinsurance Contracts against Catastrophic Loss (1998)
BibTeX
@MISC{At98pricingexcess-of-loss,
author = {Risk Management At and Young Llp and Department Risk Management and J. David Cummins and J. David Cummins and Christopher M. Lewis and Christopher M. Lewis and Richard D. Phillips and Richard D. Phillips and Richard D. Phillips},
title = {Pricing Excess-of-Loss Reinsurance Contracts against Catastrophic Loss},
year = {1998}
}
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Abstract
This paper develops a pricing methodology and pricing estimates for the proposed Federal excessof -loss (XOL) catastrophe reinsurance contracts. The contracts, proposed by the Clinton Administration, would provide per-occurrence excess-of-loss reinsurance coverage to private insurers and reinsurers, where both the coverage layer and the fixed payout of the contract are based on insurance industry losses, not company losses. In financial terms, the Federal government would be selling earthquake and hurricane catastrophe call options to the insurance industry to cover catastrophic losses in a loss layer above that currently available in the private reinsurance market. The contracts would be sold annually at auction, with a reservation price designed to avoid a government subsidy and ensure that the program would be self supporting in expected value. If a loss were to occur that resulted in payouts in excess of the premiums collected under the policies, the Federal government would use it...
Keyphrases
catastrophic loss excess-of-loss reinsurance contract federal government reservation price company loss catastrophe reinsurance contract government subsidy fixed payout insurance industry loss private insurer loss layer federal excessof loss financial term pricing estimate clinton administration per-occurrence excess-of-loss reinsurance coverage pricing methodology hurricane catastrophe call option private reinsurance market insurance industry coverage layer
