September 10th, 2008

Chart: Price Comparison - Traditional Reinsurance vs. Catastrophe Bonds

Posted at 2:41 PM ET

For placement where the expected LOL is less than 1 percent, capital market solutions are most attractive, as most reinsurers will charge minimum ROLs while capital markets can diversify. LOLs between 1 percent and 7 percent suggest convergence. The diagram shows a number of instances where catastrophe bonds are priced below traditional reinsurance. For LOLs higher than 7 percent, traditional markets dominate, due to the higher underwriting sophistication and knowledge required.

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