Financial Innovation in the Management of Catastrophe Risk

Catastrophic events such as hurricane and earthquakes are the dominant source of risk for many property casualty insurers. Primary insurers usually limit the scale and geographic scope of their operations in order to focus on core competencies such as marketing, underwriting and loss control. But his often leaves them without sufficient geographic spread to diversify catastrophe risk. The traditional hedge for the primary insurer is reinsurance. Specialist reinsurers achieve a spacial spread of risk and can therefore bear catastrophe risk that is undiversifiable to the primary. But the transaction costs associated with reinsurance, and therefore premiums, are high. High premiums, coupled with the fact that catastrophe losses exhibit little correlation with capital market indices, has attracted considerable activity in Wall Street in searching for new instruments that securitize catastrophe risk. Indeed many players are now talking of catastrophe risk being a new “asset class” and new instruments such as catastrophe options and catastrophe bonds are starting to appear. The rationale for these new instruments is usually developed as follows. Recent catastrophe events such as Hurricane Andrew and the Northridge earthquake have imposed costs on the insurance industry of an order of magnitude not thought possible only a decade ago. More sophisticated modeling now presents potential losses to the industry of $50 billion or more. Examples would be Andrew hitting Miami, a major quake on the New Madrid Fault and a repeat of the 1906 San Francisco earthquake. These events could wipe out 25$200 billion. Two such events, or one such event combined with continued mass tort claims (e.g. successful plaintiff claims in tobacco litigation) could cripple the whole industry. However, losses of this size would hardly cause a ripple in capital markets. The U.S. capital market currently currently consists of securities representing some $13 trillion of investor wealth and the loss scenarios cited above amount to less than one standard deviation of daily trading volume. Presentations by merchant bankers, reinsurance brokers and others have echoed this potential for diversifying catastrophe risk within the capital market. The high transactions costs of reinsurance offers potential for hedging instruments to be offered to primary insurers that are both competitive with current reinsurance and which offer investors high rates of return. Moreover, since catastrophe risk is uncorrelated with market indices, the benchmark for such investments is just the risk free rate. Pricing new instruments requires that the expected loss be estimated with some. Until recently, insurers and reinsurers had a comparative advantage in information on catastrophic events. But in the past decade a number of modeling firms have developed models that combine seismic and meteorological information with data on the construction, siting, and value of individual buildings. These models can be used to simulate the economic effects of many thousands of storms and earthquakes. Although such models are used by the insurance firms and reinsurers, mainly for loss estimation and re-balancing their exposure, the same models are now available to other companies and investors. The arrival of the modelers and their models is eroding the comparative information advantage of insurers and reinsurers and opening the door to new players. Insurers will retain their comparative advantage over, say, merchant banks in related insurance services such as marketing, underwriting and loss settlement facilities. But the stage has been set for an unbundling of insurance products with insurers retaining marketing underwriting and settlement services and risk bearing by-passing the reinsurance industry and being provided more directly from the capital market. But the combination of high transaction costs for reinsurance and the vast capacity of the capital market for diversification, is not sufficient to ensure the success of these new instruments. The costs associated with reinsurance do not necessarily reflect monopoly rent. Relationships between primary insurers and reinsurers involve moral hazard; the relationship relaxes the incentive for the insurer to underwrite carefully or to settle claims efficiently. Consequently, the reinsurer will monitor the primary. Moreover, long term relationships are often formed to counter such expropriation. The apparently high transaction costs of reinsurance may simply reflect the resolution of moral hazard. If new instruments such as catastrophe options and bonds are to compete successfully with reinsurance, they must be able resolve incentive conflicts between the primary insurer and the ultimate risk bearer. Indeed, if moral hazard is not resolved, using past insurance loss data to estimate the potential returns for purchasers of catastrophe bonds, etc, is spurious. The purpose of this paper is to examine and categorize new catastrophe hedging instruments. These instruments will then be compared with traditional risk management strategies adopted by primary insurers in order to compare their relative efficiency at resolving incentive conflicts. Each instrument offers a different combination of credit risk, basis risk and moral hazard. For example, catastrophe reinsurance is subject to significant credit risk and moral hazard, but does not encounter significant basis risk. I will argue that the differential performance of the traditional and new instruments offers primary insurers with a richer portfolio of risk management strategies, though no strategy is dominant in its performance on all three criteria.

Cytokine and Lipid Mediator Regulation of Group 2 Innate Lymphoid Cells (ILC2s) in Human Allergic Airway Disease.

The recent discovery of group 2 innate lymphoid cells (ILC2s) has caused a paradigm shift in the understanding of allergic airway disease pathogenesis. Prior to the discovery of ILC2s, Th2 cells were largely thought to be the primary source of type 2 cytokines; however, activated ILC2s have since been shown to contribute significantly, and in some cases, dominantly to type 2 cytokine production. Since the discovery of ILC2s in 2010, many mediators have been shown to regulate their effector functions. Initial studies identified the epithelial derived cytokines IL-25, IL-33, and TSLP as activators of ILC2s, and recent studies have identified many additional cytokine and lipid mediators that are involved in ILC2 regulation. ILC2s and their mediators represent novel therapeutic targets for allergic airway diseases and intensive investigation is underway to better understand ILC2 biology and upstream and downstream pathways that lead to ILC2-driven airway pathology. In this review, we will focus on the cytokine and lipid mediators that regulate ILC2s in human allergic airway disease, as well as highlight newly discovered mediators of mouse ILC2s that may eventually translate to humans

Chondrocalcinosis is common in the absence of knee involvement

Introduction: We aimed to describe the distribution of radiographic chondrocalcinosis (CC) and to examine whether metacarpophalangeal joint (MCPJ) calcification and CC at other joints occurs in the absence of knee involvement. Methods: This was a cross-sectional study embedded in the Genetics of Osteoarthritis and Lifestyle study (GOAL). All participants (n = 3,170) had radiographs of the knees, hands, and pelvis. These were scored for radiographic changes of osteoarthritis (OA), for CC at knees, hips, symphysis pubis, and wrists, and for MCPJ calcification. The prevalence of MCPJ calcification and CC overall, at each joint, and in the presence or absence of knee involvement, was calculated. Results: The knee was the commonest site of CC, followed by wrists, hips, and symphysis pubis. CC was more likely to be bilateral at knees and wrists but unilateral at hips. MCPJ calcification was usually bilateral, and less common than CC at knees, hips, wrists, and symphysis pubis. Unlike that previously reported, CC commonly occurred without any knee involvement; 44.4% of wrist CC, 45.9% of hip CC, 45.5% of symphysis pubis CC, and 31.3% of MCPJ calcification occurred in patients without knee CC. Those with meniscal or hyaline articular cartilage CC had comparable ages (P = 0.21), and neither preferentially associated with fibrocartilage CC at distant joints. Conclusions: CC visualized on a plain radiograph commonly occurs at other joints in the absence of radiographic knee CC. Therefore, knee radiographs alone are an insufficient screening test for CC. This has significant implications for clinical practice, for epidemiologic and genetic studies of CC, and for the definition of OA patients with coexistent crystal deposition

International student subjectivities: biographical investments for liquid times

The international student as an object of study has typically been understood through the frame of cultural identity, mapped back to notions of fixed, static notions of cultural difference. In contrast, this study seeks to understand how the practice of international study has emerged as an increasingly popular ‘biographical solution’ (Beck 1992, Bauman 2002) in order to pursue imagined career trajectories in a globalised and competitive world. Informed by recent studies of middle class strategy in Asia (Pinches, 1999) and the transnational Chinese diaspora (Ong 1999, Ang 2001) that challenge essentialist accounts of timeless Asian values and East-West binaries, the paper analyses interview data collected from ‘Asian’ international students attending preparatory programs at an Australian university. Specifically, the paper discusses the disciplinary formation of the ‘international student’ – the take-up of self-Orientalizing discourses (Ong, 1999), and engagement in practices of auto-ethnography (Pratt, 1998). In addition, the paper explores students’ critiques of, and resistances to Orientalist discourses, and pragmatic willingness to submit to local demands to further their longer term goals. Preparatory programs emerge not so much as life-changing locations but rather necessary transit lounges, for the acquisition of cultural distinctions along their life routes

Insuring the uninsurable : brokers and incomplete insurance contracts

How do markets spread risk when events are unknown or unknowable and where not anticipated in an insurance contract? While the policyholder can "hold up" the insurer for extra contractual payments, the continuing gains from trade on a single contract are often too small to yield useful coverage. By acting as a repository of the reputations of the parties, we show the brokers provide a coordinating mechanism to leverage the collective hold up power of policyholders. This extends both the degree of implicit and explicit coverage. The role is reflected in the terms of broker engagement, specifically in the ownership by the broker of the renewal rights. Finally, we argue that brokers can be motivated to play this role when they receive commissions that are contingent on insurer profits. This last feature questions a recent, well publicized, attack on broker compensation by New York attorney general, Elliot Spitzer. Klassifikation: G22, G24, L1

Diagnosis and management of eosinophilic asthma: a US perspective.

Eosinophilic asthma is now recognized as an important subphenotype of asthma based on the pattern of inflammatory cellular infiltrate in the airway. Eosinophilic asthma can be associated with increased asthma severity, atopy, late-onset disease, and steroid refractoriness. Induced sputum cell count is the gold standard for identifying eosinophilic inflammation in asthma although several noninvasive biomarkers, including fractional exhaled nitric oxide and periostin, are emerging as potential surrogates. As novel therapies and biologic agents become increasingly available, there is an increased need for specific phenotype-directed treatment strategies. Greater recognition and understanding of the unique immunopathology of this asthma phenotype has important implications for management of the disease and the potential to improve patient outcomes. The present review provides a summary of the clinical features, pathogenesis, diagnosis, and management of eosinophilic asthma

Covert repertoires: ecotage in the UK

Ecological sabotage (ecotage) has been a feature of the more radical parts of the environmental movement in the Western world for several decades. While it may be perceived as being the preserve of underground cells of 'eco-terrorists', in the UK those who carry out small-scale acts of sabotage are also often engaged in relatively conventional political activity; view sabotage as a complement to other action, not as an end in itself; and are committed to avoiding physical harm to people. Drawing on ethnographic data from research with British activists, this article seeks to define ecotage and to explain its place in the repertoires of the environmental direct action movement in the UK. It is argued that the self-limiting form of ecotage in the UK has its roots in cross-movement debates that have developed over several decades and that national traditions remain important in understanding the development of social movement repertoires

Generation of spin-polarized currents via cross-relaxation with dynamically pumped paramagnetic impurities

Key to future spintronics and spin-based information processing technologies is the generation, manipulation, and detection of spin polarization in a solid state platform. Here, we theoretically explore an alternative route to spin injection via the use of dynamically polarized nitrogen-vacancy (NV) centers in diamond. We focus on the geometry where carriers and NV centers are confined to proximate, parallel layers and use a 'trap-and-release' model to calculate the spin cross-relaxation probabilities between the charge carriers and neighboring NV centers. We identify near-unity regimes of carrier polarization depending on the NV spin state, applied magnetic field, and carrier g-factor. In particular, we find that unlike holes, electron spins are distinctively robust against spin-lattice relaxation by other, unpolarized paramagnetic centers. Further, the polarization process is only weakly dependent on the carrier hopping dynamics, which makes this approach potentially applicable over a broad range of temperatures.C.A.M. acknowledges support from the National Science Foundation through Grant No. NSF-1314205. M.W.D. acknowledges support from the Australian Research Council through Grant No. DP120102232