Catastrofic Risk by Erik Banks
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Catastrofic Risk by Erik Banks
Catastrophic risk is one of the most significant and challenging areas of corporate risk management. Analyze this risk for your company with Catastrophic Risk and make sure you have sufficient resources to absorb losses and avoid financial distress. Also
The first comprehensive volume to address this topic from a financial perspective, this book is a guide to the worst financial risks threatening companies and industries today. Author Eric Banks begins with a consideration of catastrophe and its mplications, looks at the state of actuarial and financial modelling of catastrophe risks, and discusses the creation of a risk management framework that will enable the efficient and secure management of exposure. Catastrophic Risk is essential reading if you’re a corporate treasurer, CFO, or insurance/financial risk manager responsible for corporate risk management. Order your copy today. Also
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Table of Contents
Acknowledgments ix Also
About the author xi
PART I IDENTIFICATION AND ANALYSIS OF CATASTROPHIC RISK 1
1 Catastrophe and Risk 3
1.1 Introduction 3
1.2 The nature of catastrophe 5 Also
1.2.1 A definition 5
1.2.2 Frequency 5
1.2.3 Vulnerability 8
1.2.4 Measuring severity 11 Also
1.3 The scope of impact 11
1.4 Catastrophe and the risk management framework 13
1.5 Overview of the book 15 Also
2 Risk Identification I: Perils 17
2.1 Natural catastrophe 18
2.1.1 Geophysical 19 Also
2.1.2 Meteorological/atmospheric 22
2.1.3 Other natural disasters 26
2.2 Man-made catastrophe 29
2.2.1 Terrorism 29
2.2.2 Industrial contamination 31 Also
2.2.3 Technological failure 32
2.2.4 Financial dislocation 33
2.3 Mega-catastrophe and clash loss 34 Also
3 Risk Identification II: Regional Vulnerability 35
3.1 Spatial impact of natural catastrophes 36
3.1.1 Bermuda and the North American Atlantic Coast 36 Also
3.1.2 Florida 36
3.1.3 North American West Coast 37
3.1.4 US Great Plains/Midwest 38 Also
3.1.5 Caribbean 39
3.1.6 Mexico 39
3.1.7 Japan 40
3.1.8 South Asia/Southeast Asia 41 Also
3.1.9 Middle East/Near East 43
3.1.10 Europe 43
3.2 Spatial impact of man-made catastrophes 44
3.2.1 North America 46
3.2.2 Europe 47 Also
3.2.3 Asia/Pacific 47
3.3 Urban vulnerabilities 47
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4 Modeling Catastrophic Risk 49
4.1 The development and use of models 49 Also
4.2 The goals of catastrophe modeling 50
4.3 General model construction 51
4.3.1 Phase one: Hazard/peril assessment 52
4.3.2 Phase two: Vulnerability assessment 55 Also
4.3.3 Phase three: Contract assessment 59
4.3.4 A general example 60
4.3.5 Other perils 63
4.4 Challenges 64 Also
4.4.1 Model characteristics and assumptions 65
4.4.2 Model validation 66
4.4.3 Tail risks 67
4.4.4 Data quality and granularity 67 Also
PART II MANAGEMENT OF CATASTROPHIC RISK 69
5 Catastrophe and the Risk Management Framework 71
5.1 Active risk management 71
5.1.1 Enterprise value, liquidity, and solvency 72 Also
5.1.2 Loss control, loss financing, and risk reduction 74
5.2 Risk monitoring 81
5.3 Private and public sector efforts 82 Also
5.4 Sources of capital 83
5.4.1 Insurers/reinsurers 83 Also
5.4.2 Investment funds 84
5.4.3 Financial institutions 85
5.5 Toward active risk management 85 Also
6 Catastrophe Insurance and Reinsurance 87
6.1 Insurable risk and insurance 87
6.1.1 Full insurance 88
6.1.2 Partial insurance 88 Also
6.1.3 Captives 89
6.2 Catastrophe insurance 89
6.3 Reinsurance 92 Also
6.3.1 Facultative and treaty reinsurance 92
6.3.2 Proportional and excess of loss agreements 93
6.4 Catastrophe reinsurance 95 Also
6.5 Market cycles 98
6.6 Internal risk management 101
6.7 Challenges 103
6.7.1 Pricing difficulties 103 Also
6.7.2 Earnings and capital volatility 104
6.7.3 Concentrations 106
6.7.4 Limits to insurability/uninsurable risks 106 Also
6.7.5 Lack of insurance/reinsurance penetration 107
6.7.6 Capacity constraints 107
6.7.7 Contagion effects and systemic concerns 108 Also
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7 Catastrophe Bonds and Contingent Capital 111
7.1 Overview of securitization 111
7.2 Catastrophe bonds 112 Also
7.2.1 Standard structures 112
7.2.2 Innovations 120
7.2.3 Market focus and direction 123
7.3 Contingent capital 124 Also
7.3.1 Standard structures 125
7.3.2 Contingent debt 126
7.3.3 Contingent equity 128
7.4 Challenges 131 Also
7.4.1 Structural flaws 132
7.4.2 Regulatory differences 132
8 Catastrophe Derivatives 135
8.1 Overview of derivatives 135 Also
8.1.1 Exchange-traded derivatives 136
8.1.2 OTC derivatives 137
8.2 Exchange-traded catastrophe derivatives 139
8.3 OTC Catastrophe derivatives 140
8.3.1 Catastrophe reinsurance swaps 140 Also
8.3.2 Pure catastrophe swaps 142
8.3.3 Synthetic OTC structures 142 Also
8.4 Challenges 144
8.4.1 Index construction and basis risks 144
8.4.2 Lack of contract transparency 144
8.4.3 One-way markets 145 Also
8.4.4 Pricing difficulties 145
8.4.5 Regulatory barriers 145
9 Public Sector Management and Financing 147
9.1 Forms of public sector involvement 147 Also
9.1.1 Ex ante loss control measures 147
9.1.2 Insurance/reinsurance 148
9.1.3 Ex post crisis management 156 Also
9.1.4 Financing and subsidies 157
9.1.5 Financial regulation 158 Also
9.2 Challenges 159
9.2.1 Voluntary versus mandatory measures 159 Also
9.2.2 Public and private sector responsibilities 160
9.2.3 Lack of market access and capacity 161 Also
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10 Outlook and Conclusions 163
10.1 Loss control 163 Also
10.1.1 Loss control implementation 163
10.1.2 Enforcing urban planning 163 Also
10.2 Quantification 164
10.2.1 Modeling requirements 164 Also
10.2.2 Transparency 164
10.2.3 Complexity of terrorism 165 Also
10.3 Loss financing 165
10.3.1 Vulnerabilities and risk capacity 165 Also
10.3.2 Discriminatory funding and insurance 166
10.4 Government participation 166 Also
10.4.1 Optimal government role 166
10.4.2 Limited government resources 167 Also
10.4.3 Adverse incentives 167
10.4.4 Market deregulation 168 Also
10.5 General management 168
10.5.1 Sub-optimal management 168 Also
10.5.2 Sustainability of solutions 169
10.5.3 Preparing for the mega-catastrophe 169 Also
10.5.4 Amalgamated solutions 169
10.5.5 Learning from past events 170 Also
Bibliography 171
Index 175 Also
Author Information
ERIK BANKS, an independent risk consultant, writer, and lecturer, has held senior risk management positions at several global financial institutions over the past 20 years, including Merrill Lynch, Citibank, and XL Capital. He is the author of 18 books on risk, derivatives, governance, and merchant banking, including the John Wiley titles Alternative Risk Transfer, Exchange-Traded Derivatives, The Simple Rules of Risk, and E-Finance. Also
Reviews
“…useful to have at hand…Risk, of whatever nature, remains something that needs to be addressed at all times.” (Accounting Technician, August 2005) Also
“It is a beautifully clear book…enlightening… one which turns a complex and potentially off-putting subject into a remarkably interesting one.” (Strategic Risk, June 2007) Also
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Course Features
- Lectures 0
- Quizzes 0
- Duration 45 hours
- Skill level All levels
- Language English
- Students 91
- Assessments Yes
