This website uses cookies to ensure you have the best experience. Learn more

Insurance Industry: The Development Of Securitization

1450 words - 6 pages

bstact
This paper firstly provides a description of the development of securitization in insurance industry. It also introduce the details of securitization process. Meanwhile, the paper displays the reason for the demand of securitization by description of experience in insurance industry. Then it shows how the securitization is applied in insurance industry. What's more, the paper includes the comparison between reinsurance and securitization from three aspects. Finally, it conclude the advantages of securitization.

Introduction

Securitization is one of the most important innovations in financial market. Compared with insurance and reinsurance, securitization always stands ...view middle of the document...

Therefore, since 2007, insurance and reinsurance corporations started to use securitization as a compensation of unexpected disasters for hedging risk even though the loss ratio was not that high at that time.

Overview of Securitization Process

Securitization is the process by which an asset or asset pool is repackaged and sold for cash in capital market.The cash is raised by the issue of securities whose cash flows are collateralized by the principal and interest income on the original asset. Even though asset-backed securities (ABS) have been issued derived from different types of cash flows and different kinds of securities, the structure of those ABS transactions are almost similar.
There are several important elements that are involved in insurance-linked transactions. It starts with an originator who initiates the contracts giving rise to the cash flows that are finally securitized. Originators usually are banks and institutions who own sensitive asset, such as residential and commercial mortgages and other types of loans, insurance policies and annuities of life insurance companies, and various types of financing agreements of industrial firms. The originators provide products to their clients, who will pay a series of payments in the future period. The present value of those principal and interest payments will constitutes an asset of the originator. Generally, the originator records the asset earned from the transaction of the products on its balance sheet. The asset-backed securities market gives the originator a way to move the asset off balance sheet by securitization. The asset is usually moved off by transferring the asset to a special purpose vehicle (SPV), a financial entity who exists independently to deal with the asset and issue securities with the asset as collateral. Then, the special purpose vehicle issues securities to investors who provide capital to the SPV. (Cowley, 2005)

Drivers of Demand for Securitization in insurance industry

First of the primary factor is catastrophe experience. After suffer from significant catastrophe losses, the possible maximum losses was estimated that could be more than ten billion dollars. The demand and pricing of reinsurance increase significantly. Meanwhile, the availability and stability of reinsurance could be a problem because of the huge losses. After diversification and reinsurance, the insurer and reinsurer still face the problem of undiversified risk, which can lead to unexpectedly high losses. Under the circumstance, the crash to the insurance industry could be handled efficiently by the capital markets.
Secondly, more and more investors get involved into capital markets because of its rapid development . At the same time, new asset classes and asset-backed market are in demand. From investment perspective, uncorrelated asset is always used for diversification.
Thirdly, the changing of structure of the insurance industry, such as mergers and acquisitions, illustrated that...

Find Another Essay On Insurance Industry: The Development of Securitization

Insurance in the US Industry Market Research

1266 words - 5 pages , boats, and other recreational vehicles, in comparison to its competitors. The motorcycle insurance sector is a 10.4 billion dollar industry and growing (PRWEB, 2012). The U.S. Department of Transportation website reports some astounding figures, including that 5,370,035 motorcycles were registered three years before the article, 7,138,476 motorcycles registered at the time of the article, and grew to 9,477,243 registered motorcycles at the end

The Downside of Unemployment Insurance Essay

2033 words - 8 pages roads they would be fixing. Works Cited Garcia, Claudia. Personal Interview. 20. May. 2010 Gordon, Margaret S., and Ralph W. Amerson. Unemployment Insurance. Berkeley: Institute of Industrial Relations, University of California, 1957. Print. "Layoffs and Retraining." Workforce and Economic Development (WED). Web. 26 May 2010. . Moffatt, Mike. "What Are The Three Types of Unemployment?" Economics at About.Com -- Your Portal to the World of Economics. Web. 05 June 2010. . “Unemployment Insurance.” Personal Survey. 26. May. 2010

The Necessity Of Car Insurance

947 words - 4 pages The Necessity of Car Insurance A few days ago, while I was spending the day with my friend Sean, he received a notice in the mail that his car insurance payment had gone up by twenty dollars a month. He, of course, wasn’t happy with this increase and started complaining about how car insurance was ridiculous and how much he hated it. He started going on about how people should not be required to have car insurance and listed a number of

The Problem of Insurance Fraud

1475 words - 6 pages Fraud is common among many aspects of society, one of the most prevalent types of fraud is insurance fraud. The fraud occurs on both ends from the insurer, to the people who use insurance including the physicians and the patients. A frauds usually cost Americans about thirty billion each year, which is a high cost for the amount of the money that those involved in the fraud often get from insurance (O'Rourke, 2003). For example, In

Insurance - The need of the hour

1695 words - 7 pages existence which is explained later.Business Model of Insurance Company:-The insurance company business model revolves around its underwriting policies. These policies are the important component of an insurance company. The premium is collected based on the quantum of the risk exposed in insuring a particular property or a person. Gopalakrishnan (2001,cited by atmanand (2003)) said that "The Insurance industry has at its disposal comprehensive

Merck and Vioxx, the implications of new product development in the pharmaceutical industry

2228 words - 9 pages team to unintentionally or intentionally overlook many hidden hazards which may lead to potential failures (Chandy et al, 2006) . This is particularly true in regard to the risks of product development in the pharmaceutical industry, particularly the amount of costs involved with research and development, the high failure rate of products under the scrutiny of the FDA, as well as latter costs of litigation and withdraw when hazards were

Sarbanes-Oxley Act and the Insurance Industry. Article Analysis about the Sarbanes-Oxley Act

859 words - 3 pages Sarbanes-Oxley Act and the Insurance IndustryJames M SmithUniversity of PhoenixSarbanes-Oxley Act and the Insurance IndustryThe Sarbanes-Oxley Act was signed into legislation in 2002 and made major changes in the regulation of financial practice and corporate governance. This paper will analyze a specific article while explaining how the Sarbanes-Oxley Act impacts the internal control of the insurance industry. This paper will also discuss

Areas in Which the Life Insurance Industry Has Changed over Time

1138 words - 5 pages time, it is vital for the regulatory framework to keep pace with dynamics of the Life Insurance Industry. This study explores areas where the life insurance industry has changed over time through different product offerings, globalization, evolving technology, and changes in the economic environment of Discovery Vitality Life. The study provides a framework to assist regulators in assessing which changes have been successful, which need

Increasing Competition in the British Insurance Sector of the Market

1566 words - 6 pages international community, its infrastructure and its prospects for further growth are likely to influence the potential investors. Britain is a high-industrialized country; because of its rapid financial and industrial development the country has become one of the major commercial centers. Current paper focuses on a specific part of the British market: the Insurance sector; the various aspects of the specific industry are examined and evaluated; emphasis

The Efficacy of Deposit Insurance in the Australian Context

5068 words - 20 pages provisions, where any financial contribution by the Federal Government paid under the FCS can be recovered via a priority claim against the assets of the failed ADI in the liquidation process, and if required, from the ADI industry through a levy.As such, the broader institutional framework needed for deposit insurance to be effective currently exists. However, there are some additional factors that need to be considered. While APRA has demonstrated

The industry of fools

757 words - 3 pages The gambling industry of the United States has grown at a spectacular rate since the 1980's. Billions of dollars are spent on various forms of gambling each year from the $1 lottery ticket at the gas station, to the roulette wheel on the strip in Las Vegas. With this enormous growth has come a debate on whether gambling is a good public policy or an addictive, dangerous sport. I feel that gambling in America creates lower productivity, disrupts

Similar Essays

The Insurance Industry Essay

1989 words - 8 pages The focus of this case study is on selected topics involving information assurance and information management in the insurance industry. In particular, it discusses: 1. Holdovers in processes and/or attitudes in the early days of insurance computing. 2. Progress in moving beyond the fundamental problems. 3. Independent information processing in the industry. 4. Significant information management issues. Holdovers in processes and/or

Industry Analysis Of The Life Insurance Sector In India

3412 words - 14 pages Industry in India 6 1.2 Insurance Regulatory and Development Authority 7 1.3 Growth Factors for Life Insurance in India 8 2. Objective of the Study 9 3. Life Insurance Industry in India 10 4. Analysis of Performance of Life Insurance Sector 11 4.1 Penetration and Density of Life Insurance 11 4.2 Increasing Participation of Private Sector in Life Insurance Segment 12 4.3 Market Share in Life Insurance Segment 13 4.4 Growing Demand Due To Increased

Pros And Cons Of The Private Insurance Industry

3353 words - 13 pages purchased by insurers from other insurers to minimise the total loss that an insurer would involves.), reported that the number of natural catastrophes in 1990s is 4.5 times greater than in the 1960s; and economic losses are 8 times greater. Accordingly, serious or irreversible losses and damages associated with adverse effect of climate change also have threaten private sectors. In particular, insurance industry, the world’s largest industry, with £2.9

The Weather And The Insurance Industry

1305 words - 6 pages that insurance payments have increased 15 fold over a 30-year period. (Ceres: “Stormy Future for U.S. Property/Casualty Insurers: The Growing Costs and Risks of Extreme Weather Events: September 2012. See http://www.ceres.org/resources/reports/stormy-future.) The Ceres report predicts that these trends will continue and that the very existence of the insurance industry is under threat if this isn’t addressed. As premiums rise less businesses and