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Financial Markets and Portfolio Management
Published in: Financial Markets and Portfolio Management 2/2023

17-04-2023

Securitization of pandemic risk by using coronabond

Authors: Adlane Haffar, Éric Le Fur, Mohamed Khordj

Published in: Financial Markets and Portfolio Management | Issue 2/2023

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Abstract

This article investigates the pandemic risk coverage within the European Union member states through insurance securitization. This strategy allows the transfer of health risks from the insurance market to the financial markets. We focus on the financial market crisis caused by the COVID-19 pandemic to securitize the losses caused by the latter. Over the period from 24/01/2020 (the first proven case of contamination in Europe) to 31/03/2020 (end of the dramatic decrease in financial markets), we apply the extreme value theory allowing the selection of the trigger threshold. We identify an immediate reaction of the financial markets following a pandemic shock, the effect of which fades after a few days. The response of stock market indices, measured by the fluctuation of return rates, is not very high. Nevertheless, the reaction of the financial markets is sufficient for the corona bond triggering, provided that the threshold for triggering the incidence rate is optimal. In addition, the securitization of insurance risk could be an alternative process to the classic risk transfer techniques such as co-insurance and reinsurance. Finally, a reinsurance pool dedicated to the insurance scheme's management against the effects of a pandemic is crucial for insurance securitization. These results could have implications for various actors such as insurers, financial investors, and States.
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Footnotes
1
See Wilder-Smith and Osman (2020) for a historic overview of previous pandemics.
 
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Metadata
Title
Securitization of pandemic risk by using coronabond
Authors
Adlane Haffar
Éric Le Fur
Mohamed Khordj
Publication date
17-04-2023
Publisher
Springer US
Published in
Financial Markets and Portfolio Management / Issue 2/2023
Print ISSN: 1934-4554
Electronic ISSN: 2373-8529
DOI
https://doi.org/10.1007/s11408-023-00425-2

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