By Erik Banks
A realistic method of ART-an substitute approach in which businesses tackle a number of kinds of riskThis finished publication exhibits readers what artwork is, the way it can be utilized to mitigate possibility, and the way sure instruments/structures linked to artwork might be applied. via a number of examples and case reports, readers will research what truly works and what does not whilst utilizing this method. Erik Banks (CT) joined XL Capital's weather/energy hazard administration subsidiary, aspect Re, as a companion and leader probability Officer in 2001. Read more...
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Additional info for Alternative risk transfer : integrated risk management through insurance, reinsurance, and the capital markets
Reinvestment of CFi ). Given that loss control is a multi-year process, it must be viewed over the entire time horizon, rather than the typical one-year insurance horizon. 2 Insurers might fear some instance of moral hazard in these situations. 3 Costs and beneﬁts of loss ﬁnancing Loss-ﬁnancing techniques are the centerpiece of the risk management process for many ﬁrms and demand considerable analysis since many variables and alternatives are involved. , after the initial loss control measures are implemented, they only require periodic review).
Fundamentally, the risk transfer/hedging markets can increase the available pools of unsystematic risk and promote greater ﬁnancial stability by diffusing exposures; there is sufﬁcient evidence to suggest that such mechanisms are quite resilient in the face of dislocation. The insurance mechanism transfers the cost of post-loss ﬁnancing for reinvestment from the cedant to the insurer in exchange for the payment of a premium. This provides funding as well as earnings stability, both of which are essential in the quest for value maximization.
Alternatively, the costs associated with partial insurance may be reasonable in light of the beneﬁts that can be obtained. As noted earlier, some ﬁrms prefer to transfer risks that are difﬁcult to estimate, such as low-frequency/high-severity exposures. Although this clearly involves a premium cost, two beneﬁts arise: costs savings from not having to precisely quantify the potential impact of a ‘disaster’ (a difﬁcult and sometimes imprecise exercise) and ex-ante post-loss funding that is secured in the aftermath of what might be a signiﬁcant loss event.