Decomposition of Natural Catastrophe Risks: Insurability Using Parametric CAT Bonds

Nat Cat risks are not insurable by traditional insurance mainly because of producing highly correlated losses. The source such correlation among buildings a region subject to natural hazard is discussed. A decomposition method proposed split risk into idiosyncratic (and hence insurable) and systematic (carrying the part). It explained that can be transferred capital markets using set parametric CAT bonds. Premium calculation presented for insuring decomposed risk. Portfolio risk-return trade-off measures investing on bond derived. Multi-regional multi-hazard bonds introduced reduce investment. methodology applied with about 3000 residential flood hazards.