Why Have Exchange-Traded Catastrophe Instruments Failed to Displace Reinsurance? Rajna Gibson¤ Michel A. Habiby Alexandre Zieglerz ¤Swiss Finance Institute, University of Zurich, Plattenstrasse 14, 8032 Zurich, Switzerland, tel.: +41- (0)44-634-2969, fax: +41-(0)44-634-4903, e-mail:
[email protected]. ySwiss Finance Institute, University of Zurich, Plattenstrasse 14, 8032 Zurich, Switzerland, tel.: +41- (0)44-634-2507, fax: +41-(0)44-634-4903, e-mail:
[email protected]; CEPR. zSwiss Finance Institute, University of Lausanne, Extranef Building, 1015 Lausanne, Switzerland, tel.: +41-(0)21-692-3359, fax: +41-(0)21-692-3435, e-mail:
[email protected]. We wish to thank Pauline Barrieu, Jan Bena, Charles Cuny, Benjamin Croitoru, Marco Elmer, Pablo Koch, Henri Loubergé, Peter Sohre, Avanidhar Subrahmanyam, and seminar participants at the CEPR Conference on Corporate Finance and Risk Management in Solstrand, the EFA meetings in Ljubljana, the EPFL, the ESSFM in Gerzensee, the SCOR-JRI Conference on New Forms of Risk Sharing and Risk Engineering in Paris, and the Universities of Geneva, Konstanz, and Zurich for helpful comments and discussions, and Swiss Re for providing illustrative data. Financial support by the National Centre of Competence in Research Financial Valuation and Risk Management (NCCR FINRISK), the Swiss National Science Foundation (grant no. PP001102717), and the URPP Finance and Financial Markets is gratefully acknowledged. Why Have Exchange-Traded Catastrophe Instruments Failed to Displace Reinsurance? Abstract Financial markets can draw on a larger, more liquid, and more diversied pool of capital than the equity of reinsurance companies, yet they have failed to displace reinsurance as the primary risk-sharing vehicle for natural catastrophe risk.