Author(s): X. X. Tao & Z. R. Tao
Financial instruments for earthquake disaster reduction are dealt with in this
In general, there are two kinds of instruments to reduce earthquake
disaster, one is engineering mitigation measures and the other is referred to as
The former contributed a lot in disaster
prevention for many years, and the latter has been emphasized in these years as
the economic structure in urban areas is getting more and more complicated.
financial instruments, e.g.
earthquake insurance and catastrophe bonds (cat
bonds), are adopted to disperse the risk.
The main point of earthquake insurance
is to set the rate rationally and correctly.
A seismic risk assessment based method
of setting the rate for earthquake property and personal insurances with two
kinds of deductibles is presented in detail in this paper.
Cat bonds have been one
of the most active catastrophe insurance derivatives nowadays to supply
Since the middle of the 1990s, some insurers have become
insolvent or on the edge of insolvency from catastrophes.
A framework of setting
the annual coupon rate for earthquake cat bonds is also built, in which the
probability of earthquake catastrophe occurrence from seismic risk assessment,
the yields of reinvestment, the principal protected ratio and the issuance fee ratio
are designed as the four factors.
Finally, some further ideas to improve the
integration of the financial instruments with the engineering seismic risk
assessment are discussed briefly.
earthquake risk management, earthquake insurance, cat bonds,
engineering seismic risk assessment.
Size: 300 kb
Paper DOI: 10.2495/SAFE050191
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