Annual Report 1997/1998 - Munich Re

Munich Re Topical subjects
Securitization of insurance risks
Insurance securitization, the process
of turning insurance risk into a
marketable security, has been in
existence since the mid-nineties. The
basic idea is to transfer insurance risks
not to the insurance market but to the
capital market, where they are assumed
by institutional or private investors
instead of by insurers and reinsurers.
Large international investment banks
that are looking for new areas of
Insurance
Securitization
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operation are the main driving force
behind this development. The capital
markets, for their part, are constantly
on the lookout for new investment
opportunities. From the investor’s point
of view, the appeal of an involvement in
insurance risks is that they generally
have little or no correlation with
traditional financial risks like equity
risk, interest rate risk or currency risk
and thus make possible a broader risk
spread.
BANK
Although activities in the area of
insurance securitization have increased
somewhat worldwide (the number of
major transactions doubling in 1997
from three in 1996), the amount of risk
capacity transferred to the capital
markets has remained insignificant at
only US$ 700m.