Risk transfer beyond reinsurance: the added value of CAT bonds

Abstract Reinsurance and CAT bonds are two alternative risk management instruments used by insurance companies. Insurers should be indifferent between the in a perfect capital market. However, theoretical literature suggests that insured characteristics market imperfections may influence effectiveness efficiency of reinsurance relative to bonds. add value insurers’ strategies therefore substitute for reinsurance. Our study is first empirically analyse if under what circumstances can traditional analysis comprehensive data set comprising U.S. P&C financial statements bond use shows companies’ choice not arbitrary. We find added mainly stems from non-indemnity reveal (non-indemnity) valuable high reinsurer default risk, low basis high-risk layers.