A Dynamic Model of Extreme Risk Coverage : Resilience and Efficiency in the Global Reinsurance Market

Lemoyne de Forges, Sabine; Bibas, Ruben; Hallegatte, Stephane

dc.creator	Lemoyne de Forges, Sabine
dc.creator	Bibas, Ruben
dc.creator	Hallegatte, Stephane
dc.date	2012-03-19T18:04:47Z
dc.date	2012-03-19T18:04:47Z
dc.date	2011-09-01
dc.date.accessioned	2023-02-17T20:59:34Z
dc.date.available	2023-02-17T20:59:34Z
dc.identifier	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110922160728
dc.identifier	http://hdl.handle.net/10986/3571
dc.identifier.uri	http://localhost:8080/xmlui/handle/CUHPOERS/244535
dc.description	This paper presents a dynamic model of the reinsurance market for catastrophe risks. The model is based on the classical capacity-constraint assumption. Reinsurers choose every year the quantity of risk they cover and the level of external capital they raise to cover these risks. The model exhibits time dependency and reproduces a market dynamics that shares many features with the real market. In particular, market price increases and reinsurance coverage decreases after large shocks, and a series of smaller losses may have a deeper impact than one larger loss. There is a significant oligopoly effect reducing reinsurance supply, and the market is segregated into strategic large actors that influence market prices and price-taker smaller firms. A regulation trade-off between market efficiency and resilience is identified and quantified: improving the ability of the market to cope with exceptional events increases the cost of reinsurance. This model provides an interesting basis to analyze further capacity needs for the insurance industry in view of growing worldwide exposure to catastrophic risks and climate change.
dc.language	English
dc.relation	Policy Research working paper ; no. WPS 5807
dc.rights	CC BY 3.0 IGO
dc.rights	http://creativecommons.org/licenses/by/3.0/igo/
dc.rights	World Bank
dc.subject	ADVERSE SELECTION
dc.subject	AGENTS
dc.subject	AGGREGATE DEMAND
dc.subject	ALLOCATION
dc.subject	AMOUNT OF CAPITAL
dc.subject	AMOUNT OF RISK
dc.subject	ASSURANCE
dc.subject	BANK POLICY
dc.subject	BANKRUPTCY
dc.subject	BANKRUPTCY RISK
dc.subject	BUDGETING
dc.subject	BUSINESS OPPORTUNITIES
dc.subject	BUSINESS RISKS
dc.subject	BUY BACK
dc.subject	BUY BACKS
dc.subject	CAPACITY CONSTRAINT
dc.subject	CAPACITY CONSTRAINTS
dc.subject	CAPITAL ALLOCATION
dc.subject	CAPITAL COSTS
dc.subject	CAPITAL MARKET
dc.subject	CAPITAL MOVEMENTS
dc.subject	CAPITAL STRUCTURE
dc.subject	CAPITALIZATION
dc.subject	CAPITALIZATIONS
dc.subject	CASUALTY INSURANCE
dc.subject	CATASTROPHE BONDS
dc.subject	CATASTROPHE INSURANCE
dc.subject	CATASTROPHE REINSURANCE
dc.subject	CATASTROPHES
dc.subject	CATASTROPHIC RISKS
dc.subject	CEDANT
dc.subject	CEDANTS
dc.subject	CEDING INSURER
dc.subject	CLIMATE
dc.subject	CLIMATE CHANGE
dc.subject	CLIMATE EXTREMES
dc.subject	COINSURANCE
dc.subject	CORPORATE GOVERNANCE
dc.subject	COST OF CAPITAL
dc.subject	COST OF EQUITY
dc.subject	COST OF REINSURANCE
dc.subject	COVERAGE
dc.subject	DEBT
dc.subject	DEFAULT PROBABILITIES
dc.subject	DEFAULT PROBABILITY
dc.subject	DEFAULT RISK
dc.subject	DEMAND ELASTICITY
dc.subject	DEMAND FUNCTION
dc.subject	DISASTERS
dc.subject	DIVIDEND
dc.subject	DYNAMIC MODEL
dc.subject	EARNED PREMIUM
dc.subject	ECONOMIC GROWTH
dc.subject	ECONOMIC THEORY
dc.subject	EQUILIBRIUM PRICE
dc.subject	EQUITY CAPITAL
dc.subject	EXPOSURE
dc.subject	EXTREME EVENT
dc.subject	EXTREME EVENTS
dc.subject	FAIR
dc.subject	GLOBAL INSURANCE
dc.subject	GLOBAL MARKET
dc.subject	GLOBAL REINSURANCE
dc.subject	GLOBAL REINSURANCE MARKET
dc.subject	GUARANTY FUNDS
dc.subject	HOLDING
dc.subject	HURRICANE
dc.subject	HURRICANES
dc.subject	ILLIQUIDITY
dc.subject	INDEMNITY
dc.subject	INSTRUMENT
dc.subject	INSURANCE COMPANIES
dc.subject	INSURANCE INDUSTRY
dc.subject	INSURANCE MARKETS
dc.subject	INSURANCE REGULATION
dc.subject	INSURANCE SECTOR
dc.subject	INSURED LOSSES
dc.subject	INTERNATIONAL BANK
dc.subject	IPO
dc.subject	LIABILITY
dc.subject	LIABILITY SIDE
dc.subject	LIMITED LIABILITY
dc.subject	LONG-TERM COST
dc.subject	LOWER PRICES
dc.subject	MARKET BEHAVIOR
dc.subject	MARKET CAP
dc.subject	MARKET CAPITALIZATION
dc.subject	MARKET CONDITIONS
dc.subject	MARKET DATA
dc.subject	MARKET DEMAND
dc.subject	MARKET EFFICIENCY
dc.subject	MARKET EQUILIBRIUM
dc.subject	MARKET POWER
dc.subject	MARKET PRICE
dc.subject	MARKET PRICES
dc.subject	MARKET RISK
dc.subject	MARKET RISKS
dc.subject	MARKET SEGMENTATION
dc.subject	MARKET SHARE
dc.subject	MARKET SHARES
dc.subject	MARKET STRUCTURE
dc.subject	MARKET SUPPLY
dc.subject	MORAL HAZARD
dc.subject	NATURAL DISASTERS
dc.subject	OLIGOPOLISTIC MARKET
dc.subject	OLIGOPOLY
dc.subject	OUTPUT
dc.subject	OUTPUTS
dc.subject	PERFECT INFORMATION
dc.subject	POLICYHOLDERS
dc.subject	PORTFOLIO
dc.subject	PREMIUMS
dc.subject	PRICE INCREASES
dc.subject	PRICE INDEX
dc.subject	PROBABILITY OF DEFAULT
dc.subject	PROBABILITY OF DEFAULTS
dc.subject	PROGRAMS
dc.subject	PROPORTIONAL REINSURANCE
dc.subject	PUBLIC POLICY
dc.subject	RATE OF RETURN
dc.subject	RATES
dc.subject	REGULATOR
dc.subject	REGULATORY CONSTRAINT
dc.subject	REGULATORY REQUIREMENTS
dc.subject	REINSURANCE
dc.subject	REINSURANCE CAPACITY
dc.subject	REINSURANCE COMPANIES
dc.subject	REINSURANCE CONTRACTS
dc.subject	REINSURANCE MARKETS
dc.subject	REINSURERS
dc.subject	RETROCESSION
dc.subject	RETURN
dc.subject	RISK AVERSION
dc.subject	RISK EVALUATION
dc.subject	RISK MANAGEMENT
dc.subject	RISK MANAGEMENT TOOL
dc.subject	RISK OF DEFAULT
dc.subject	RISK PREMIUM
dc.subject	RISK SHARING
dc.subject	RISK-FREE INVESTMENTS
dc.subject	SCENARIOS
dc.subject	SECURITIES
dc.subject	SENSITIVITY ANALYSES
dc.subject	SHAREHOLDER
dc.subject	SHAREHOLDERS
dc.subject	SOLVENCY
dc.subject	STORM SURGE
dc.subject	SURPLUS
dc.subject	SUSTAINABLE DEVELOPMENT
dc.subject	SYSTEMIC RISK
dc.subject	TREATIES
dc.subject	TREATY
dc.subject	UNDERWRITING
dc.title	A Dynamic Model of Extreme Risk Coverage : Resilience and Efficiency in the Global Reinsurance Market
dc.type	Publications & Research :: Policy Research Working Paper
dc.coverage	The World Region
dc.coverage	The World Region