Catastrophic Risk: Analysis and Management (The Wiley Finance Series) - Hardcover

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ERIK BANKS, an independent risk consultant, writer, and lecturer, has held senior risk management positions at several global financial institutions over the past 20 years, including Merrill Lynch, Citibank, and XL Capital. He is the author of 18 books on risk, derivatives, governance, and merchant banking, including the John Wiley titles Alternative Risk Transfer, Exchange-Traded Derivatives, The Simple Rules of Risk, and E-Finance.

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Catastrophic risk is one of the most significant and challenging areas of corporate risk management. The onset of hurricane, earthquake, windstorm, terrorism, systemic financial dislocation, or “clash losses” can create billions of dollars of losses, financially damaging companies and regional/national economies. A single “supercat” event affecting a densely populated and economically productive area may be exceptionally devastating, causing losses in excess of $100 billion.

The possibility that these catastrophic events can occur means that the topic must be properly considered: at the corporate level directors must ensure sufficient resources and post-loss financing arrangements to avoid financial distress, and at the macro level regulators and intermediaries must ensure adequacy of risk mechanisms to absorb losses.

Catastrophic Risk is the first comprehensive volume to address the topic from a financial perspective. The book should be essential reading for corporate treasurers, CFOs and insurance/financial risk managers responsible for corporate risk management.

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The book is divided into two parts:

Part I: Identification and Analysis of Catastrophic Risk

Part I of the text introduces the topic of catastrophe risk management by examining general facets of financial and operating risk and defining the unique qualities of high severity/low frequency risks. Several chapters are then devoted to the risk identification process, with a particular focus on natural and man-made perils and regional vulnerabilities. Methods of quantifying catastrophe risks, including the development of a multi-stage modelling process, are then explored.

Part II: Management of Catastrophic Risk

Part II of the text builds on the identification and modelling phases by introducing a general framework for the management of catastrophe risks. Specific chapters are devoted to the implementation of pre- and post-loss financing solutions, including insurance and reinsurance, catastrophe bonds and contingent capital, catastrophe derivatives, and public management and financing. The book concludes with a discussion of critical issues and future challenges related to effective management of catastrophe risks.