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How insurance risk is transformed into investable assets

riskvest.io

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Re: How insurance risk is transformed into investable assets

#21

Post by itake »

bawolff wrote: post #18
rrjjww wrote: post #7

Earlier quoted context omitted.

The lack of information was my inspiration for building Riskvest. I called my own broker and when I said catastrophic bonds they asked if I meant buying bonds already in default. On the risk side - your comments here are part of the myth I’m trying to dispel and will have lots more to say in future posts. Yes for a single CAT bond you are exposed to potential 100% principle losses. But if you buy a bundle of CAT bond…

> But if you buy a bundle of CAT bonds that focus on say California Earthquake, Florida Hurricane, Japanese Typhoon, and a Cyber Event, you can imagine the diversification benefit you get there. Yeah, but imagine how bad a day you're having if all of those disasters happen at once, and then as a cherry on top you lose all your money.

Yeah, it seems like you’d want to buy bonds that covers areas that you’re not personally in…

Re: How insurance risk is transformed into investable assets

#23

Post by anjel »

olooney wrote: post #8
blakepelton wrote: post #3

I've asked two financial advisors about CAT bonds. One had never heard of them and the other said were about as risky as crypto. I guess this is such a niche product that there isn't widespread knowledge about it. I wonder how much more diversified $ILS could be if it were larger. Would a 10x increase in assets under management give it significantly less volatility because it could do a better job spreading risk arou…

CAT bonds are typically restricted to institutional investors. I would be very surprised if you could even buy one without being a QIB.

https://riskvest.io/market-watch/ils-nyse-offering

Re: How insurance risk is transformed into investable assets

#24

Post by nilirl »

So, did the Covid 19 pandemic force multiple insurance companies into insolvency?

Also, what does new product development look like for industries like this? How does one search for new financial products? Is it possible for a non-expert to come up with new products in this space?

Are there any books you can recommend for a novice?

Re: How insurance risk is transformed into investable assets

#26

Post by NoboruWataya »

antasvara wrote: post #4

There are a lot of interesting dynamics in this market. For example, CAT bonds are generally tied to the specific natural hazard ("this bond triggers if a hurricane of Category 3 or higher land falls in this segment of Florida") or to industry losses, as estimated by an agreed upon source. This means that a CAT bond is correlated with, but not directly informed by an insurer's actual loss experience. Traditional rein…

> CAT bonds are generally tied to the specific natural hazard ("this bond triggers if a hurricane of Category 3 or higher land falls in this segment of Florida") or to industry losses, as estimated by an agreed upon source.

A big part of the reason for this is that if payout is tied to actual loss, it starts to look a lot like actual insurance, which is specifically not what you want. Because while anyone* can buy a bond, only insurers or reinsurers can write insurance. This is something that needs to be considered whenever an insurer (or anyone, really) tries to transfer risk to a non-insurer.

Re: How insurance risk is transformed into investable assets

#27

Post by jbs789 »

blakepelton wrote: post #3

I've asked two financial advisors about CAT bonds. One had never heard of them and the other said were about as risky as crypto. I guess this is such a niche product that there isn't widespread knowledge about it. I wonder how much more diversified $ILS could be if it were larger. Would a 10x increase in assets under management give it significantly less volatility because it could do a better job spreading risk arou…

There are institutional funds but generally it’s a small market with very limited retail presence. Schroders has one. (Artemis is a great source of info in the space - niche trade publication.)

https://www.artemis.bm/ils-fund-managers/schroder-investment...

Re: How insurance risk is transformed into investable assets

#28

Post by quantum2022 »

nilirl wrote: post #24

So, did the Covid 19 pandemic force multiple insurance companies into insolvency? Also, what does new product development look like for industries like this? How does one search for new financial products? Is it possible for a non-expert to come up with new products in this space? Are there any books you can recommend for a novice?

I don't think so. I'm pretty sure it was considered an 'act of G-d', not an act of China :)

I think you could also have specific pandemic insurance, and that paid out, but those were rare before Covid.

Re: How insurance risk is transformed into investable assets

#29

Post by dan-robertson »

nilirl wrote: post #24

So, did the Covid 19 pandemic force multiple insurance companies into insolvency? Also, what does new product development look like for industries like this? How does one search for new financial products? Is it possible for a non-expert to come up with new products in this space? Are there any books you can recommend for a novice?

Why would it? I don't think that much pandemic insurance is written and obviously you model all the contracts as being very highly correlated.

Re: How insurance risk is transformed into investable assets

#30

Post by ascorbic »

nilirl wrote: post #24

So, did the Covid 19 pandemic force multiple insurance companies into insolvency? Also, what does new product development look like for industries like this? How does one search for new financial products? Is it possible for a non-expert to come up with new products in this space? Are there any books you can recommend for a novice?

In the end there's always someone left holding the can. Lloyd's of London has underwriters with unlimited liability. Incredibly, a lot of these Names have historically been private individuals. In the 90s a lot of these lost their shirts (and their homes) when they dicovered that it wasn;t just an easy source of passive income. https://www.theguardian.com/money/2000/nov/04/business.perso...
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