Risk Securitization in Catastrophic and Life Insurance Policies

Document Type : Original Article

Authors
Alireza Pourebrahimi
Shahram babalooyan
Mohammad Javad Sadehvand
Assistant professor, Islamic Azad University, Karaj Branch
Abstract
Securitization has the potential to improve market efficiency and capital utilization in the insurance industry. Through selling risk to investors, insurers can reduce their capital requirements, and increase ability for the acquisition of new businesses. Also, in this way, they can reduce cost of capital, and enhance return on equity.
Securitization offers insurers the opportunity to unlock the embedded profits in blocks of insurance presently carried on balance sheet and to provide an alternative source of financing in an industry where traditional financing mechanisms are often restricted due to regulation.
Securitized transactions also permit insurers to achieve liquidity goals and can add transparency to many on-balance sheet assets and liabilities traditionally characterized by illiquidity, complexity, and informational opacity.
Keywords
Securitization
Insurer
Special Purpose Vehicle
Issuer
Life & catastrophic insurance
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