Insurance risks

OECD Observer

Click to enlarge.

Insurance is big business – gross premiums in OECD countries totalled US$2,510 billion in 2000, a 6.4% increase from a year earlier, almost half of it concentrated in the US with a market share of 45.6%.

If you take out life insurance, the US share of the US$1,087.2 billion market is even larger, at 56.2%. The people and businesses paying these premiums are buying a guarantee that they will be cushioned against risk, whether it be loss of their most precious possessions in a burglary, death in an accident or the destruction of a factory building by fire, flood, or deliberate attack.

But how do insurers deal with their own risks, to ensure that they can meet an unexpectedly high number of claims due to events such as 11 September or the worst flooding in a century? One longstanding answer is reinsurance, where insurers borrow off-balance sheet capital to reduce pressure on their own risk-bearing capital.

But after a series of major catastrophes, a shortage of major funds can drive up the price of acquiring capital in the reinsurance market. This happened in the United States in the wake of Hurricane Andrew and the Northridge earthquake in the mid-1990s, and insurers turned to insurance-linked securities.

Demand for these stagnated in the late 1990s as reinsurance premiums fell, but market participants expect the events of 11 September to send demand for insurance-linked securities rising again, particularly "catastrophe bonds" covering predefined natural catastrophes such as an earthquake or hurricane.

•OECD, 2002, Financial Market Trends, Finance and Investment, No. 82, Paris

•OECD, 2002, Insurance Statistics Yearbook 1993-2000, Paris

©OECD Observer No 234, October 2002

Economic data

GDP growth: -1.8% Q1 2020/Q4 2019
Consumer price inflation: 0.9% Apr 2020 annual
Trade (G20): -4.3% exp, -3.9% imp, Q1 2020/Q4 2019
Unemployment: 8.4% Apr 2020
Last update: 9 July 2020

OECD Observer Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Digital Editions

Don't miss

Most Popular Articles

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2020