Methods or strategies used to mitigate financial risks, also known as
speculative risks, as opposed to pure risk (e.g., fire, flood) for which
insurance is typically purchased. Examples of financial risk include currency
fluctuations and changes in the cost of raw materials. Financial risks have
traditionally been handled by hedging strategies that utilize various
derivative-type instruments. More recently, the concept of insuratization
(i.e., using an insurance product to mitigate financial risk) is being applied
and has helped to facilitate the slow but steady convergence of the reinsurance
and capital markets.