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Making a Market for Acts of GodThe Practice of Risk Trading in the Global Reinsurance Industry$
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Paula Jarzabkowski, Rebecca Bednarek, and Paul Spee

Print publication date: 2015

Print ISBN-13: 9780199664764

Published to Oxford Scholarship Online: April 2015

DOI: 10.1093/acprof:oso/9780199664764.001.0001

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Unraveling the Nest

Unraveling the Nest

From a Market for Acts of God to a Market for Commodities

Chapter:
(p.158) 6 Unraveling the Nest
Source:
Making a Market for Acts of God
Author(s):

Paula Jarzabkowski

Rebecca Bednarek

Paul Spee

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199664764.003.0006

Chapter 6 introduces current shifts stemming from the fact that multinational insurance companies are now buying reinsurance as large bundled multi-territory, or even global, deals that cover multiple disasters. This change has fundamental consequences for how the reinsurance market works, eroding vital principles that have been an important counter-balance to the unpredictability of disasters. Specifically, it marginalizes the process through which consensus price is established. This has been critical for collective risk-bearing and flattens market cycles, which has been critical for stabilizing long-term capital flow. Such changes have a multitude of cascading effects, such as eroding business relationships, increasing the reliance on complex statistical models, and opening the gate for competition from alternative risk transfer products from new players such as hedge funds. Reinsurance is shifting from a market for Acts of God to a market for financial commodities, with potentially devastating effects for the provision of risk cover.

Keywords:   financial market, relationality, alternative risk transfer, cat bonds, bundled deals, reinsurance buying behaviour, reinsurance commodification, financial collapse, market failure, social practice theory

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