Collateralized Reinsurance (CRe):

Collateralized Reinsurance developed in parallel with catastrophe bonds as a mechanism to facilitate risk-transfer from insurance markets to capital markets investors. Collateralized reinsurance is distinct from cat bonds in that a tradable instrument is not created to facilitate the risk-transfer process. Typically, collateralized reinsurance is identical to traditional reinsurance except for the practice of the “investor” providing collateral for its full potential claim obligation under the contract in question. Collateralized reinsurance has allowed unrated entities such as hedge-funds and pension funds to assume insurance market risks without the burden of achieving an explicit claims paying rating from a leading rating agency. The practice has also resulted in a broader range of risks being transferred to the capital markets than through catastrophe bonds alone due to characteristics of various insurance risks that do not lend themselves well to the securitization process.