World Meteorological Organization
Basics of Catastrophe
Reinsurance
Geneva
December, 2007
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Catastrophes and Insurance
The same catastrophe event affects many people – and is
the cause of loss under many insurance policies at the
same time.
– defeats statistical independence
– losses aggregate from the same cause
Catastrophes create a separate class of insurance risk for
insurance companies.
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Catastrophe Excess of Loss Reinsurance
Outline Sample Agreement
Reinsured Insurance Company XYZ
Coverage Property, physical damage and business interruption
losses arising from a single Event.
Type
Indemnity Excess of Loss
Period
12 months 1 January 200Q – 31 December 200Q
Limit
Up to US$125,000,000 UNL excess of
US$100,000,000 UNL.
Premium US$xx,xxx,xxx
Other
Conditions Definition of Event
Definition of UNL
Exclusions
etc.
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Catastrophe Excess of Loss Reinsurance
Example Hypothetical Loss
Total of Losses in an Event
Attachment
Recoverable from Cat XL
US$ 209,000,000
US$ 100,000,000
US$ 109,000,000
Remaining Limit
US$ 16,000,000
Please note:
• The Reinsured may have purchased layers above and layers
below this layer US$125,000,000 xs US$100,000,000.
• Together the layers form a catastrophe excess of loss program
(e.g. $700,000,000 xs $50,000,000 in four layers).
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Reinsurance and Catastrophe Risk
Motivation to purchase reinsurance
The purpose of catastrophe reinsurance is to limit the capital
required to meet major catastrophe risks.
Hypothetical Program:
For catastrophe losses >US$50,000,000 the Reinsured will not
have to have more risk capital available than US$50,000,000
- unless the loss is >US$750,000,000.
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Catastrophe Risk and Insurance
Miscellaneous Points
1. Risk Modeling
2. Other means of Risk Transfer
• Pro rata Reinsurance
• Index and parametrically based
Reinsurance/Derivatives
3. National Catastrophe Pools and Programs
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Financing Catastrophe Risk
Transfer of Catastrophe Risk
Insurance Markets
Insured
Insured
Insurance
Company
Reinsurer
Retrocessionaire
Insurance
Company
Reinsurer
Retrocessionaire
Insured
Insured
Insured
Insured
Insured
Insured
Capital Markets Investors
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Disclaimer
•Willis Structured Financial Solutions Limited ("WSFSL") is an investment business authorized and regulated by the UK
Financial Services Authority. Willis Securities, Inc. ("WSI"), is a licensed broker dealer authorized and regulated by the NASD
and is a member of SIPC. Willis Capital Markets ("WCM") is a trading name of WSFSL and WSI. Reinsurance products are
placed through Willis Re Inc. in the United States and through Willis Limited in the UK. Willis Re, Willis Limited, WSFSL and
WSI are Willis Group companies.
•These materials have been prepared by WCM for the WCM client or potential client to whom such materials are addressed in
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