A0923
Title: Index insurance and catastrophe bonds for coping with agriculture risk in a multi-region setting
Authors: Christine Oetjen - RPTU Kaiserslautern (Germany) [presenting]
Abstract: In index-based insurance, systemic risk can cause large losses for crop insurers. Motivated by recent studies in the literature on agriculture risk, the purpose is to explore how regional diversification and securitization using catastrophe bonds can reduce these losses. For this, an equilibrium model is considered to optimize the expected utility from all parties. The model is applied to different data from Chinese and Indonesian farmers. Both regional diversification and securitization lead in the statistical analysis to a higher insurer's expected utility. With the help of simulations, it is observed that securitization reduces the insurer's risk of extreme losses in terms of the value-at-risk. An important aspect is also the robustness of the model in terms of parameter and distribution choices. Furthermore, it is discussed in which situations catastrophe bonds and in which situations traditional reinsurance prevails and an idea on how to combine these two concepts is given.
