Alternative Risk Transfer (ART)
A set of techniques transferring risk outside the traditional insurance and reinsurance circuit.
USAA places Residential Re in 1997, one of the first cat bonds: hurricane risk leaves the reinsurance channel for bond investors' portfolios. ART, alternative risk transfer, covers the techniques that transfer or finance a risk outside traditional insurance and reinsurance. The tools vary. A captive lets a group insure its own risks. Insurance-Linked Securities and cat bonds move the risk to the capital markets. Parametric insurance pays on an objective trigger. Add structured products that mix insurance and markets. The shared aim is to find extra capacity, spread cover across more sources, and cover what the traditional market prices badly or will not write. The AlgoPolis paper sees a possible way out for highly automated firms whose algorithmic execution is becoming uninsurable: parametric cover triggered by oracles and smart contracts, or dedicated captives that tie up massive reserves. The limit is plain. ART does not make the risk go away, it rearranges how it is funded, and it often means tying up capital or accepting basis risk that conventional insurance avoided.
Textbook case: unable to find sufficient cyber cover on the conventional market, a group combines a captive with a parametric cover triggered by the measured downtime of a provider, illustrating an alternative-transfer approach.
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