YOU ASK:

What is the definition of Securitization of Insurance Risk?

WE ANSWER:

Securitization of Insurance Risk refers to the process of using capital markets to spread insurance risk. This is one way insurance companies can diversify and expand their risk exposure.

Insurance risk can be traded using the capital markets through issuing note or bonds to third-party investors. This can be done by the insurance company, the reinsurer or an insurance pool. This may be done directly or indirectly and can be used as a way to obtain more capital to cover more risks.

The securitization of insurance risk is particularly useful, especially for spreading the exposure in high-risk or high-ticket risk such as what is involved in catastrophe insurance. Securitization also has the added advantage of adding liquidity.

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