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Hongfei Lin 1
1)The motivation of iuing cat bond by USAA;
From Exhibit 7, the price for catastrophe reinsurance jumped from 1 to 6 from 1991 to 1993, meaning tradition reinsurance is too expensive for the company to bear.USAA was a special company, in the beginning, it only wrote policies to US military officers and their families.But as times paes by, it began to underwrite to the commons.USAA had little ability to control on the geographic pattern of the policies that it underwrote, they need to insure their policyholders where ever they live, including states with high catastrophe exposure, such as Florida and California and it is these two states has the fastest market growth.Hurricanes in particular, the relative low frequency of these events made it difficult for actuaries to estimate the likelihood of a hurricane occurrence, on the other hand, the lo from hurricane occurrence is substantial.Busine interruption, flood, property damage, all these claims have the potential to bankrupt an insurance company.Since traditional reinsurance is expensive, USAA needs to find other alternative for the reinsurance coverage they needed.2)Other alternatives available to USAA;
