Securitization of Catastrophe Risk: New Developments in Insurance- Linked Securities and Derivatives

This paper discusses the most recent developments in insurance securitization and assesses the potential for growth in the insurance-linked securities (ILS) market and in insurance-linked derivatives. In particular, the authors analyze the motivations of security sponsors and investors to participate in the catastrophe (CAT)– linked capital market, and identify the key components of growth and its impediments. Finally, this article discusses the technical and regulatory issues that could be crucial to market growth. In this context, the authors recommend new private and public initiatives aimed at boosting the use and efficiency of CAT-linked securities and derivatives.