Alternative Risk Transfer by Erik Banks
About Course
Alternative Risk Transfer by Erik Banks
A practical approach to ART-an alternative method by which companies take on various types of risk
This comprehensive book shows readers what ART is, how it can be used to mitigate risk, and how certain instruments/structures associated with ART should be implemented. Through numerous examples and case studies, readers will learn what actually works and what doesn’t when using this technique. Also
Erik Banks (CT) joined XL Capital’s weather/energy risk management subsidiary, Element Re, as a Partner and Chief Risk Officer in 2001. Also
Table of Contents
Acknowledgements ix
Biography xi Also
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PART I: RISK AND THE ART MARKET 1
1 Overview of Risk Management 3
1.1 Risk and return 3 Also
1.2 Active risk management 5
1.2.1 Risk management processes 6 Also
1.2.2 Risk management techniques 7
1.2.3 General risk management considerations 10 Also
1.3 Risk concepts 12
1.3.1 Expected value and variance 12 Also
1.3.2 Risk aversion 14
1.3.3 Risk transfer and the insurance mechanism 16 Also
1.3.4 Diversification and risk pooling 17
1.3.5 Hedging 20 Also
1.3.6 Moral hazard, adverse selection and basis risk 21
1.3.7 Non-insurance transfers 22 Also
1.4 Outline of the book 22
2 Risk Management Drivers: Theoretical Motivations, Benefits, and Costs 25
2.1 Maximizing enterprise value 25 Also
2.2 The decision framework 29
2.2.1 Replacement and abandonment 31 Also
2.2.2 Costs and benefits of loss control 31
2.2.3 Costs and benefits of loss financing 32 Also
2.2.4 Costs and benefits of risk reduction 35
2.3 Coping with market cycles 35 Also
2.3.1 Insurance pricing 35
2.3.2 Hard versus soft markets 37 Also
2.4 Accessing new risk capacity 42
2.5 Diversifying the credit risk of intermediaries 43 Also
2.6 Managing enterprise risks intelligently 44
2.7 Reducing taxes 45 Also
2.8 Overcoming regulatory barriers 46
2.9 Capitalizing on deregulation 47
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3 The ART Market and its Participants 49
3.1 A definition of ART 49 Also
3.2 Origins and background of ART 51
3.3 Market participants 52 Also
3.3.1 Insurers and reinsurers 53
3.3.2 Investment, commercial, and universal banks 55 Also
3.3.3 Corporate end-users 56
3.3.4 Investors/capital providers 57 Also
3.3.5 Insurance agents and brokers 57
3.4 Product and market convergence 58 Also
PART II: INSURANCE AND REINSURANCE 61
4 Primary Insurance/Reinsurance Contracts 63
4.1 Insurance concepts 63
4.2 Insurance and loss financing 64 Also
4.3 Primary insurance contracts 65
4.3.1 Maximum risk transfer contracts 65
4.3.2 Minimal risk transfer contracts 66 Also
4.3.3 Layered insurance coverage 76
4.4 Reinsurance and retrocession contracts 78 Also
4.4.1 Facultative and treaty reinsurance 81
4.4.2 Quota share, surplus share, excess of loss, and reinsurance pools 81 Also
4.4.3 Finite reinsurance 86 Also
5 Captives 89
5.1 Using captives to retain risks 89
5.1.1 Background and function 89
5.1.2 Benefits and costs 91 Also
5.2 Forms of captives 94
5.2.1 Pure captives 94 Also
5.2.2 Sister captives 95
5.2.3 Group captives 95
5.2.4 Rent-a-captives and protected cell companies 96 Also
5.2.5 Risk retention groups 99
5.3 Tax consequences 100Also
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6 Multi-risk Products 103
6.1 Multiple peril products 103
6.2 Multiple trigger products 106 Also
PART III: CAPITAL MARKETS 113
7 Capital Markets Issues and Securitization 115
7.1 Overview of securitization 115 Also
7.2 Insurance-linked securities 116
7.2.1 Overview 116 Also
7.2.2 Costs and benefits 118
7.3 Structural features 119
7.3.1 Issuing vehicles 119 Also
7.3.2 Triggers 121
7.3.3 Tranches 123 Also
7.4 Catastrophe bonds 124
7.4.1 Hurricane 124 Also
7.4.2 Earthquake 127
7.4.3 Windstorm 129 Also
7.4.4 Multiple cat peril ILS and peril by tranche ILS 129
7.4.5 Bond/derivative variations 130
7.5 Other insurance-linked securities 131 Also
8 Contingent Capital Structures 135
8.1 Creating post-loss financing products 135
8.2 Contingent debt 139 Also
8.2.1 Committed capital facilities 139
8.2.2 Contingent surplus notes 140 Also
8.2.3 Contingency loans 141
8.2.4 Financial guarantees 142 Also
8.3 Contingent equity 142
8.3.1 Loss equity puts 143 Also
8.3.2 Put protected equity 146
9 Insurance Derivatives 149
9.1 Derivatives and ART 149 Also
9.2 General characteristics of derivatives 150
9.3 Exchange-traded insurance derivatives 156 Also
9.3.1 Exchange-traded catastrophe derivatives 156
9.3.2 Exchange-traded temperature derivatives 157 Also
9.4 OTC insurance derivatives 162
9.4.1 Catastrophe reinsurance swaps 162 Also
9.4.2 Pure catastrophe swaps 164
9.4.3 Temperature derivatives 164 Also
9.4.4 Other weather derivatives 166
9.4.5 Credit derivatives 167
9.5 Bermuda transformers and capital markets subsidiaries 168 Also
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PART IV: ART OF THE FUTURE 171
10 Enterprise Risk Management 173
10.1 Combining risks 173 Also
10.1.1 The enterprise risk management concept 173
10.1.2 Costs and benefits 177 Also
10.2 Developing an enterprise risk management program 179
10.2.1 Strategic and governance considerations 180 Also
10.2.2 Program blueprint 182
10.2.3 Program costs 186 Also
10.3 End-user demand 188
11 Prospects for Growth 193
11.1 Drivers of growth 193 Also
11.2 Barriers to growth 194
11.3 Market segments 196 Also
11.3.1 Finite structures 196
11.3.2 Captives 197 Also
11.3.3 Multi-risk products 197
11.3.4 Capital markets issues 198 Also
11.3.5 Contingent capital 198
11.3.6 Insurance derivatives 199 Also
11.3.7 Enterprise risk management 199
11.4 End-user profiles 201 Also
11.5 Future convergence 202
Glossary 205 Also
Selected References 221 Also
Index 223
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Course Features
- Lectures 0
- Quizzes 0
- Duration 40 hours
- Skill level All levels
- Language English
- Students 92
- Assessments Yes
