Briefly answer each of the following questions:

a) What can catastrophe modelling be used for within a (re)insurance

organisation?

(5 marks)

b) Pecking order theory tells us about companies preferences when making

choices around raising capital. How can pecking order theory reveal the

relative impact of the World Trade Center attacks on insurers and reinsurers?

(5 marks)

c) Provide a brief description of an Industry Loss Warranty (ILW) and give two

reasons for a company to sell an ILW.

(5 marks)

d) From your reading of Kunreuther & Linnerooth-Bayer (2003) what are the

advantages and disadvantages of hedging instruments in the context of

catastrophic flood risk?

(5 marks)

e) What is the underlying index used in a temperature weather derivative and

how is it calculated?