Designing insurance linked securities in Iran's insurance industry

Document Type : Scientific paper

Authors

1 Vice President of Issuing Licenses in the Central Insurance of Iran

2 Associate Professor of Faculty of Economics, Allameh Tabatabai University

3 Economics Department, Economics School, Allameh Tabataba'i University, Tehran, Iran.

Abstract

insurance linked securities as a financial derivative are one of the common tools in the financial economy that risk management specialists in the insurance industry use with the purpose of financing and transferring risk to the capital market. Nevertheless, despite the fact that these bonds have been in use in the global financial markets for more than 30 years, in Iran, due to the lack of infrastructure, some ambiguities in interpretation, the complex and technical nature of insurance operations, and as a result The complexity of ILS bonds, this financial instrument has not been used in the insurance industry. On the other hand, with the start of sanctions on the insurance industry since 2009 and the withdrawal of brokers and reinsurers from the country's insurance industry, it was not possible to transfer large and catastrophic risks outside the geographical borders of Iran, and this risk accumulation In the country, the risk of bankruptcy of insurance companies has increased in the event of a major and catastrophic accident. Based on this, in this article, using Markov-switching approaches, value at risk (VAR) and scenario building, the design of excess damage coefficient bonds as one of the types of ILS bonds in the field of fire and It has been paid in the country's insurance industry. Based on the findings of this study, it can be said that the papers designed in this study meet three conditions; Guaranteeing the principal of the buyers of ILS bonds (with the aim of solving the jurisprudential problem), the expected return higher than the risk-free return rate in the market, as well as the attractive premium rate (proportion between the commitment limit and the premium rate), can be the basis for issuing these bonds in provide Iran's capital market.

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Macroeconomics Research Letter
Volume 19, Issue 43
November 2025

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History

  • Receive Date: 19 September 2024
  • Revise Date: 18 October 2024
  • Accept Date: 30 October 2024

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