Securitization of disability risk via bonds and swaps

– Two strands of the literature are combined, namely the modeling of disability insurance and the design, valuation and discussion of insurance-linked securities.

– This paper provides a discussion regarding the advantages and detriments of disability-linked securities in comparison with mortality-linked bonds and swaps as well as regarding potential disability-linked indices and the potential use. The discussion is followed by an introduction of a potential design and a corresponding valuation of disability bonds and swaps.

– This securitization will provide useful tools for the risk management of disability risk in a risk-based regulatory framework.

– No disability-linked securities have been defined and discussed so far.