The ART of Risk Management
Alternative Risk Transfer, Capital Structure, and the Convergence of Insurance and Capital Markets
Chapter One
The Nature of Financial Capital
Many of the financial products offered by insurance and derivatives industry
participants today are increasingly similar to one another. Commentators
on this phenomenon call it "convergence." The interesting question is not really
whether convergence is occurring in these two markets-it is-but rather
toward what are the markets converging?
The common theme underlying many of the new financial structures in
insurance and capital markets is that of capital structure optimization. In
short, insurance and capital market products are increasingly similar because
they are increasingly designed to help firms reduce their cost of capital
or to allocate their capital across business lines more efficiently on a
risk-adjusted basis.
We thus must begin with a discussion of capital itself: What is the nature
of capital? What is a firm's capital structure, and how does it relate to a
firm's cost of capital? When and why can the capital structure of a firm affect
the value of a firm? And how ar ... read full excerpt from The ART of Risk Management: Alternative Risk Transfer, Capital Structure, and the Convergence of Insurance and Capital Markets ebook
