Pricing of collateralized insurance obligations
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- Extreme weather events are increasing in frequency.
- Insurance and reinsurance companies faces challenges in hedging the liabilities of these events.
- Disaster insurance swaps are a new form of financial security designed to facilaite hedging.
- To aid this hedging, collateralized insurance obligations are proposed.
With the increasing frequency of extreme weather events, insurance and reinsurance companies face the challenge of hedging their liabilities. Disaster insurance swaps are a new form of financial security that facilitates the hedging of extreme weather events. The writers of such swaps face the challenge of hedging their risk exposures, similar to those of insurance and reinsurance companies. This paper describes a new form of structured product – collateralized insurance obligations – which will help writers of disaster insurance swaps and insurance and reinsurance companies hedge their liabilities.
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