Making a Market for Acts of God The Practice of Risk Trading in the Global Reinsurance Industry 1st Edition by Paula Jarzabkowski 9780191641855 0191641855

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ISBN 10: 0191641855
ISBN 13: 9780191641855
Author: Paula Jarzabkowski

Reinsurance is a financial market that trades in the risk of unpredictable and devastating disasters – such as Hurricane Katrina, the Tohoku earthquake and tsunami, and the terrorist attacks on the World Trade Centre. Such disasters are increasing in both frequency and severity, with the cost of their losses mounting rapidly. Reinsurance insures insurance companies, enabling them to pay claims arising from these losses. It is thus a market mechanism that is a critical part of the social and economic safety net, helping to pick up the pieces after disasters. Yet, how is the risk of such disasters calculated and traded in a global market? This book brings to life the reinsurance market through vivid real-life tales that draw from an ethnographic, “fly-on-the-wall” study of the global reinsurance industry over three annual cycles. The authors shadowed underwriters around the world as they traded risks through multiple disasters. For instance, this book takes readers into the desperate hours of pricing Japanese risks during March 2011, while the devastating aftermath of the Tohoku earthquake is unfolding. To show how the market works, the book offers authentic tales gathered from observations of reinsurers in Bermuda, Lloyd’s of London, Continental Europe and SE Asia as they evaluate, price and compete for different risks as part of their everyday practice. Understanding how this market for disasters works has never been more critical given the impact of climate change and increased global connectivity, where a flood in one country can trigger losses to supply chains around the world. The authors develop a novel concept of how global markets work, which advances scholarship and challenges current thinking about how financial markets trade in intangible assets such as risk. This book will be useful to readers interested in markets for disasters, insurance, reinsurance and financial markets, and academics interested in the practice of financial markets specifically or the practice of strategy and organizations generally.

Making a Market for Acts of God The Practice of Risk Trading in the Global Reinsurance Industry 1st Table of contents:

List of Reinsurance-as-Practice – Empirical Illustrations
List of Buyer’s Perspective – Empirical Illustrations
List of Figures
List of Tables
1. Reinsurance: A Market for Acts of God
1.1 Introduction
1.2 What Is this Market?
1.3 What We Did
1.4 What Is Being Traded?
1.5 Where Is Risk Traded? Hubs for Global Capital Allocation
1.6 Theorizing the Market: Advancing a Concept of Nested Relationality
1.6.1 A Conceptual Framework: Relationality, Nested Relationality, and Relational Presence
1.6.2 Sites of Market-Making Activity
1.6.3 Building on Existing Theory
1.7 Book Structure
2. United We Stand, Divided We Fall: Bearing Risk Collectively
2.1 Introduction
2.2 Quoting Deals as a Site of Market-Making Activity
2.3 General Understandings: Consensus Pricing and Market Cycles
2.3.1 Consensus Pricing
2.3.2 Market Cycles
2.4 Coordinating Through the Renewal Date
2.5 Practical Understandings: Renewing Deals Through the Quoting Process
2.5.1 Enacting the Quoting Process
2.5.2 The Practice of Renewing Business
2.6 The Thai Floods: Coordinating Consensus Pricing and Market Cycles
2.7 Relationality Between Individual Practice, Consensus Price, and Market Cycle
2.8 Further Theorizing
2.9 Conclusion
3. Transforming Disasters into Tradable Deals
3.1 Introduction
3.2 Evaluating Deals as Site of Market-Making
3.3 General Understanding: Marketization
3.4 Coordinating the Market: Models as Calculative Devices
3.5 Practical Understanding: Practicing Deal Evaluation
3.5.1 Technicalizing
3.5.2 Contextualizing
3.5.3 Blending Technicalizing and Contextualizing: Generating a Comparable and Tradable Object
3.6 Making the Market Through Deal Evaluation
3.7 Further Theorizing
3.8 Conclusion
4. Calculation at the Frontier: Evaluation in the Absence of Models
4.1 Introduction
4.2 Evaluating Within Risk-Types as a Site of Market-Making
4.2.1 Information Quality
4.2.2 Standardization
4.2.3 Three Categories of Risk-Type
4.3 General Understanding: Marketization of Varied Risk-Types
4.4 Coordinating Market Practice—Epistemic Cultures
4.4.1 Epistemic Cultures and Evaluating Varied Risk-Types
4.4.2 Epistemic Cultures and Connectivity
4.5 Practical Understandings: Variations in Blending Technicalizing and Contextualizing Among Epis
4.5.1 Blending Technicalizing and Contextualizing for Specialized Risk-Types
4.5.2 Blending Technicalizing and Contextualizing for Frontier Deals
4.5.3 Constructing the Market Through Variations in Blending
4.6 Epistemic Cultures in the Relationality Among Actors, Deal, and Market
4.7 Further Theorizing
4.8 Conclusion
5. One Firm’s Trash is Another’s Treasure: Competing in a Consensus Market
5.1 Introduction
5.2 Firm as Site
5.3 General Understandings: Basis of Competition
5.3.1 Competition to Establish and Influence the Price
5.3.2 Competing for Share During Quoting and at the Point of Capital Allocation
5.4 Coordinating Competition: Reinsurer Risk-Appetite
5.5 Practical Understandings: Enacting Risk-Appetite
5.5.1 Enacting Risk-Appetite Through Diversification Across Risk-Types
5.5.2 Enacting Risk-Appetite Through Relationship Longevity
5.5.3 Enacting Risk-Appetite Through Capital Availability
5.5.4 Enacting Variations in Evaluations of Profitability Based on Risk-Appetite
5.6 Enacting Risk-Appetite as a Competitive Process
5.6.1 The Process of Enacting Risk-Appetite
5.6.2 Enacting Competition Through Practical Understandings: An Empirical Illustration
5.7 Relationalities of Coordinating Competition in a Consensus Market
5.7.1 Relationality Among Deal and Portfolio of Risk-Types
5.7.2 Relationality Among Firm and Multiple Risk-Types
5.7.3 Relationality Among Firm and Deal
5.7.4 Relationality Between Firm and Market Cycle
5.8 Further Theorizing
5.9 Conclusion
6. Unraveling the Nest: From a Market for Acts of God to a Market for Commodities
6.1 Introduction
6.2 Changes in Purchasing Reinsurance Cover
6.2.1 Cedents’ Retention of Risk Reduces Global Reinsurance Premium
6.2.2 Bundling Risk Changes the Composition of Deals
6.2.3 Growth of Alternative Risk Transfer (ART) Products
6.3 Pressures on Nested Relationalities
6.3.1 Altering Sites of Market-Making
6.3.2 Eroding Consensus Pricing and Altering the Basis of Competition
6.3.3 Eroding Market Cycles
6.3.4 Technicalizing Is Strengthened at the Expense of Contextualizing
6.3.5 Altering Risk-Appetite
6.4 Ways Forward: Commoditizing Reinsurance Cover
6.4.1 Bundling Risks: Losing a Sense of Reality?
6.4.2 Taking Catastrophe Modeling too Seriously?
6.4.3 What Is the Purpose of Reinsurance?
6.5 Conclusion
7. Addressing “Big Questions”: Advancing a Practice Theory of the Market
7.1 Introduction
7.2 The Theory of Making a Market
7.3 Practice Theory—Answering Big Questions
Methodology Appendix
Glossary
References
Index

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Market,Risk Trading,Global Reinsurance Industry,Paula Jarzabkowski