Alternative Risk Transfer: Integrated Risk Management through Insurance, Reinsurance, and the Capital Markets (The Wiley Finance Series)

A practical approach to ART-an alternative method by which companies take on various types of riskThis 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. Erik Banks (CT) joined XL Capital's weather/energy risk management subsidiary, Element Re, as a Partner and Chief Risk Officer in 2001. Read more... Alternative Risk Transfer......Page 2 Contents......Page 6 Acknowledgements......Page 10 Biography......Page 12 PART I: RISK AND THE ART MARKET......Page 14 1.1 Risk and return......Page 16 1.2 Active risk management......Page 18 1.2.1 Risk management processes......Page 19 1.2.2 Risk management techniques......Page 20 1.2.3 General risk management considerations......Page 23 1.3.1 Expected value and variance......Page 25 1.3.2 Risk aversion......Page 27 1.3.3 Risk transfer and the insurance mechanism......Page 29 1.3.4 Diversification and risk pooling......Page 30 1.3.5 Hedging......Page 33 1.3.6 Moral hazard, adverse selection and basis risk......Page 34 1.4 Outline of the book......Page 35 2.1 Maximizing enterprise value......Page 38 2.2 The decision framework......Page 42 2.2.2 Costs and benefits of loss control......Page 44 2.2.3 Costs and benefits of loss financing......Page 45 2.3.1 Insurance pricing......Page 48 2.3.2 Hard versus soft markets......Page 50 2.4 Accessing new risk capacity......Page 55 2.5 Diversifying the credit risk of intermediaries......Page 56 2.6 Managing enterprise risks intelligently......Page 57 2.7 Reducing taxes......Page 58 2.8 Overcoming regulatory barriers......Page 59 2.9 Capitalizing on deregulation......Page 60 3.1 A definition of ART......Page 62 3.2 Origins and background of ART......Page 64 3.3 Market participants......Page 65 3.3.1 Insurers and reinsurers......Page 66 3.3.2 Investment, commercial, and universal banks......Page 68 3.3.3 Corporate end-users......Page 69 3.3.5 Insurance agents and brokers......Page 70 3.4 Product and market convergence......Page 71 PART II: INSURANCE AND REINSURANCE......Page 74 4.1 Insurance concepts......Page 76 4.2 Insurance and loss financing......Page 77 4.3.1 Maximum risk transfer contracts......Page 78 4.3.2 Minimal risk transfer contracts......Page 79 4.3.3 Layered insurance coverage......Page 89 4.4 Reinsurance and retrocession contracts......Page 91 4.4.2 Quota share, surplus share, excess of loss, and reinsurance pools......Page 94 4.4.3 Finite reinsurance......Page 99 5.1.1 Background and function......Page 102 5.1.2 Benefits and costs......Page 104 5.2.1 Pure captives......Page 107 5.2.3 Group captives......Page 108 5.2.4 Rent-a-captives and protected cell companies......Page 109 5.2.5 Risk retention groups......Page 112 5.3 Tax consequences......Page 113 6.1 Multiple peril products......Page 116 6.2 Multiple trigger products......Page 119 PART III: CAPITAL MARKETS......Page 126 7.1 Overview of securitization......Page 128 7.2.1 Overview......Page 129 7.2.2 Costs and benefits......Page 131 7.3.1 Issuing vehicles......Page 132 7.3.2 Triggers......Page 134 7.3.3 Tranches......Page 136 7.4.1 Hurricane......Page 137 7.4.2 Earthquake......Page 140 7.4.4 Multiple cat peril ILS and peril by tranche ILS......Page 142 7.4.5 Bond/derivative variations......Page 143 7.5 Other insurance-linked securities......Page 144 8.1 Creating post-loss financing products......Page 148 8.2.1 Committed capital facilities......Page 152 8.2.2 Contingent surplus notes......Page 153 8.2.3 Contingency loans......Page 154 8.3 Contingent equity......Page 155 8.3.1 Loss equity puts......Page 156 8.3.2 Put protected equity......Page 159 9.1 Derivatives and ART......Page 162 9.2 General characteristics of derivatives......Page 163 9.3.1 Exchange-traded catastrophe derivatives......Page 169 9.3.2 Exchange-traded temperature derivatives......Page 170 9.4.1 Catastrophe reinsurance swaps......Page 175 9.4.3 Temperature derivatives......Page 177 9.4.4 Other weather derivatives......Page 179 9.4.5 Credit derivatives......Page 180 9.5 Bermuda transformers and capital markets subsidiaries......Page 181 PART IV: ART OF THE FUTURE......Page 184 10.1.1 The enterprise risk management concept......Page 186 10.1.2 Costs and benefits......Page 190 10.2 Developing an enterprise risk management program......Page 192 10.2.1 Strategic and governance considerations......Page 193 10.2.2 Program blueprint......Page 195 10.2.3 Program costs......Page 199 10.3 End-user demand......Page 201 11.1 Drivers of growth......Page 206 11.2 Barriers to growth......Page 207 11.3.1 Finite structures......Page 209 11.3.3 Multi-risk products......Page 210 11.3.5 Contingent capital......Page 211 11.3.7 Enterprise risk management......Page 212 11.4 End-user profiles......Page 214 11.5 Future convergence......Page 215 Glossary......Page 218 Selected References......Page 234 Index......Page 236 The Book Contains Numerous Worked Examples And Case Studies To Place The Subject In A Practical Light, And Is Ideal Reading For Cfos, Corporate Risk Managers, Treasurers, Institutional Investors And Fund Managers Seeking To Understand The Art Market.--jacket. Pt. I. Risk And The Art Market -- 1. Overview Of Risk Management -- 2. Risk Management Drivers: Theoretical Motivations, Benefits, And Costs -- 3. The Art Market And Its Participants -- Pt. Ii. Insurance And Reinsurance -- 4. Primary Insurance/reinsurance Contracts -- 5. Captives -- 6. Multi-risk Products -- Pt. Iii. Capital Markets -- 7. Capital Markets Issues And Securitization -- 8. Contingent Capital Structures -- 9. Insurance Derivatives -- Pt. Iv. Art Of The Future -- 10. Enterprise Risk Management -- 11. Prospects For Growth. Erik Banks. Includes Bibliographical References (p. [221]-222) And Index. 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.
Erik Banks (CT) joined XL Capital's weather/energy risk management subsidiary, Element Re, as a Partner and Chief Risk Officer in 2001. The book seems to be easy to read, but still quite comprehensive. The new tendencies of ART solutions are good captured and described in a well understandible manner. Good book for everyone who wants to know main features of ART market without getting himself lost in small mathematical details Risk management is a dynamic and well-established discipline practiced by many companies around the world.