The introduction of Solvency II has decreased regulatory frictions for insurance-linked securities (ILS) and thus redefined how insurance and reinsurance companies can use these instruments for coverage against natural catastrophe risk. We introduce a theoretical framework and run an empirical analysis to assess the potential impact of Solvency II on the market volume of ILS compared to traditional reinsurance. Our key model parameter captures all determinants of the relative attractiveness of these two risk mitigation instruments other than market prices. It is estimated by means of OLS, decomposed into a trend and cyclical component using the Hodrick-Prescott filter, and forecasted with an ARMA(3,3) model. We complement the resulting baseline prediction by a scenario analysis, the probabilities for which are based on a Gumbel distribution. Judging by our findings, we expect Solvency II to increase the volume of ILS to more than 24 percent of the global property-catastrophe reinsurance limit or approximately USD 101.14 billion by the end of 2018.
Although insurance is the typical textbook example for an asset that negatively correlates with consumption, the suitability of the classical consumption-based asset pricing model with power utility to explain historical premiums and claims has not yet been tested. We fill this gap by fitting the model to property-casualty market data for Australia, Germany, Italy, Japan, Netherlands, and the United States. In doing so, we find evidence of yet another asset pricing anomaly. More specifically, the consumption-based model implies even larger relative risk aversion coefficients in the insurance sectors than in the equity markets of the aforementioned countries. To solve this puzzle, we draw on the loss aversion and narrow framing approach by Barberis et al. (2001) as well as the second-degree expectation dependence framework by Dionne et al. (2015), with encouraging results.
Die gegenwärtige Wirtschaftskrise macht deutlich, dass die herkömmliche Ausbildung von Managern in Frage gestellt werden muss. Joël Luc Cachelin begründet, warum sich Management neben Unternehmen auch mit der Gesellschaft und ihren Individuen auseinandersetzen muss. Das Management muss sich darauf ausrichten, die Identitätsarbeit von Mensch, Unternehmen und Gesellschaft zu unterstützen. Die Vorschläge werden in Form eines Curriculums und durch das Fallbeispiel der Universität St. Gallen verdichtet.
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