Alternative Risk Transfer: Integrated Risk Management by Erik Banks

By Erik Banks

The booklet looks effortless to learn, yet nonetheless particularly accomplished. the hot developments of paintings options are sturdy captured and defined in a good understandible demeanour. strong publication for everybody who desires to comprehend major good points of paintings marketplace with out getting himself misplaced in small mathematical info

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Extra resources for Alternative Risk Transfer: Integrated Risk Management through Insurance, Reinsurance, and the Capital Markets

Example text

The balance of the book is structured as follows: r In Chapters 2 and 3, we discuss important theoretical market drivers that promote growth r and innovation in the ART market, the scope, development, and evolution of the marketplace, the nature of convergence, and the role that key participants play in promoting activity. In Part II (Chapters 4, 5, and 6) we turn our attention to specific insurance/reinsurance-based ART products and vehicles, including risk transfer and risk financing contracts, captives, and multi-risk (multiple peril and trigger) products.

Moral hazard may also be explicitly or implicitly priced into the premium, becoming a cost of risk borne by the company and its shareholders. Adverse selection is defined as the mispricing of risk as a result of information asymmetries, and occurs when a protection provider cannot clearly distinguish between different classes of risk. The end result is that the protection provider supplies too much or too little risk cover at a given price, leading ultimately to an excess of losses or dearth of business.

A company may opt for full insurance (complete coverage of a risk exposure in exchange for a higher risk premium), or partial insurance (fractional coverage of risk for a lower risk premium). A cedant can create partial insurance by including a deductible (a ‘first loss’ amount paid by the cedant before the insurer makes a payment), a coinsurance feature (a ‘shared loss’ component between cedant and insurer), and/or a policy cap (a maximum amount payable by the insurer). We shall consider these, and associated technical details, in Chapter 4.

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