Policy Research Institute for Land, Infrastructure, Transport and Tourism. Ministry of Land, Infrastructure, Transport and Tourism

Search Japanese
  

TopReports > Summary

 ● Summary

year | field


Research on the natural disaster risk equalization using the financial technique in social infrastructure management

summary

The natural disaster risks in social infrastructure management are an increase of maintenance costs and a decrease of revenue from toll road etc., as well as direct damage such as injury to structures. The natural disaster occurs without regularity, so we need equalization of these risks. In this research, we survey the financial technique called as "Alternative Risk Transfer (ART)" that is being practically used for the natural disaster risk equalization in the private sector.

In chapter 1, we survey the characteristics of natural disaster in Japan, the damage conditions of natural disasters that occurred in recent years, and the present system such as disaster restoration works and damage insurance. We classify the risks in social infrastructure management by causal relationship between damage and natural disaster, and examine to what extent the present system covers the damage. The damage with unclear causality is not covered in the present system, so it is considered there is possibility that ART is applicable to the natural disaster risk equalization.

In chapter 2, we survey ART, a technique of risk equalization using financial engineering. By ART, the natural disaster risk is transferred to capital market, not to insurers, therefore ART has merits that great damage can be compensated, for example. Specifically about three techniques of ART - Catastrophe Bond, Weather Derivative and Captive, we examine fundamental schemes, the use situation in private sector, and the merits/demerits. The major demerit is that Catastrophe bond and Weather Derivative has basis risk (risk of difference between the amount of damage and compensation), so the product design requires risk analysis with precision.


Key words

Natural disaster, Risk equalization, Catastrophe Bond, Weather Derivative, Captive

issue

Reports No.62/2006 Feb.

stocks

in stock(weight:280g thickness:6mm)
We distribute all reports on request . If You desire mailing , click here.

detail

detail(Japanese)(PDF:544KB)