Question

USAA used a form of ________ called ________ to transfer catastrophic insurance risk to capital markets.

a) Risk avoidance; Reinsurance
b) Risk retention; Catastrophe bonds
c) Risk transfer; Securitization
d) Risk reduction; Diversification

Answer 1

USAA transferred catastrophic insurance risk to capital markets using a form of risk transfer known as securitization through the issuance of catastrophe bonds.

Step-by-step explanation:

USAA used a form of risk transfer called securitization to transfer catastrophic insurance risk to capital markets. This is achieved through the use of catastrophe bonds, which are essentially a financial instrument that allows the transfer of insurance risk to investors. These bonds are designed to pay off in the event of a catastrophe, thereby offsetting the potential financial loss to the insurer.