HomeAboutServicesPublicationsLinksContact Us
 
Publications
View by Date
View by Category
Complete Listing of Publications With Most Recent Article First
Pricing Risk Transfer Transactions
June 9, 2000. Published in The Astin Bulletin, Winter 2000.

By Morton N. Lane

INTRODUCTION
Should the pricing of reinsurance catastrophes be related to the price of the default risk embedded in corporate bonds?  

If not, why not? A risk is a risk is a risk, in whatever market it appears.  Shouldn’t the risk-prices in these different markets be comparable?  More basically perhaps, how should reinsurance prices and bond prices be set?  How does the market currently set them?  These questions are central to the inquiry contained in this paper.

To read the full version of this article with graphs:

Image Download the PDF Here
 
Trends in the Insurance-Linked Securities Market
May 31, 2000. Also Published in Derivatives Quarterly, Fall 2000.

By Morton N. Lane and Roger G. Beckwith

INTRODUCTION
There is some debate about when the Insurance-Linked Securities (ILS) market (a.k.a. Cat Bond market) began.  Was it June 1992 with the AIG-sponsored property-cat bond concept promoted by Merrill Lynch3?  Was it the end of 1992 when the CBOT launched its since-aborted ISO contract?  Or was it in 1995-96 with the first successful issuance of an AIG-fronted PXRE property-cat portfolio deal with additional small but successful portfolio deals from Georgetown Re and Reliance National?  Perhaps it was later in 1996 when USAA closed the first $500 million single-risk deal.

To read the full version of this article with graphs:

Image Download the PDF Here
 
An Optionable Note
April 15, 1999, The Reliance III Case Study

Morton Lane, Ph.D.

At the beginning of 1998, Reliance National purchased an option from investors to issue a pre-specified insurance-linked note, at Reliance’s sole discretion, anytime during 1998, 1999 or 2000.  It was the first “Optionable Note” in the growing market of insurance-linked securitizations.  Two other optionable securities have been issued subsequently:  (1) by Aon on behalf of Yasuda Fire and Marine (where the option was embedded in a bond); (2) by Goldman Sachs on behalf of Allianz, which used a structure very similar to that of the Reliance optionable transaction.  It is likely that such structures will be even more popular in the future.

To read the full version of this article with graphs:

Image Download the PDF Here
 
Risk Cubes or Price, Risk and Ratings (Part II)
March 15, 1999. Also published in The Journal of Risk Finance, Vol.1, No. 1, Fall 1999.


INTRODUCTION

Risk is difficult to measure – so difficult that no single measure seems robust enough for all circumstances.  This is especially true of measuring the risk contained in insurance-linked securities.  Insurance risk is usually asymmetrically skewed.  As a consequence, traditional capital market risk measures – expected loss, probability of default and the standard deviation of return outcomes – are less than perfect to the insurance task.  Without a good risk measure, it is impossible to compare the risk-adjusted pricing of insurance-linked notes on a consistent basis.  It is impossible to tell which securities are cheap and which are expensive.  It is impossible to decide on their value relative to more traditional invest-ments.

To read the full version of this article with graphs:

Image Download the PDF Here
 
What the World Bank Should Do About Catastrophic Risk

What should The World Bank do about it?  A Personal View, January 15, 1999. Based on a presentation to The World Bank Disaster Funding Seminar, "Financial Management of High Severity Risk in Developing Countries", September 22, 1998, Washington D.C.

By Morton Lane

Today’s seminar has shown that “insurance risk management is not just your father’s homeowners policy” (to poorly paraphrase the Oldsmobile slogan of some years ago).  The preceding speakers have expertly demonstrated that: (a) traditional insurance and reinsurance against catastrophes has grown dramatically in the developed world; (b) that both risk-transfer and funded cover mechanisms are available for catastrophe protection; (c) that there has been a convergence between financial and insurance markets instruments; (d) that large institutions are protecting themselves against catastrophes by issuing catastrophe bonds and derivatives as well as buying traditional reinsurance; and (e) finally, that these new forms of protection use “index” or “parametric” measures as well as indemnity losses, thereby expanding their usefulness to developing areas.  All in all, some huge changes are rippling through the staid world of insurance, and the World Bank is to be congratulated for organizing so timely a seminar for its self-education.

To read the full version of this article with graphs:

Image Download the PDF Here
 
Perfume of the Premium II
December 21, 1998. Also published in Derivatives Quarterly, Spring 1999.

Shortly after the introduction of insurance derivatives and the commencement of their trading at The Chicago Board of Trade (CBOT), we began to analyze catastrophe options by looking at the “implied loss distributions” embedded in the traded prices.  The results were recorded and described in the proceedings of the 1995 Bowles Symposium, Georgia State University, Atlanta, Georgia under the title, “The Perfume of the Premium.” 

To read the full version of this article with graphs:

Image Download the PDF Here
 
Isolating the Effects of the Price Cycle on the Lloyd's Global Index
December 15, 1998. Also published in The Risk Financier, March 1999.
 
INSTRAT-UK recently proposed an index of underwriting results based upon the Lloyd’s Global result.  Since the index applies to a broad range of underwriting lines, it is a good gauge of the whole insurance market, and, perhaps, a good hedge of particular underwriting results.

Interest has begun to focus on the prices at which options on this index might trade.

To read the full version of this article with graphs:

Image Download the PDF Here
 
AQS
December 23, 1998

The basic idea is very simple:  Let the share for which the option (or under) writer is responsible increase as the penetration of the layer gets larger.

The purpose of this structure is to reduce the cost of traditional excess of loss (or pure option) coverage.  At the same time, the structure reduces volatility and provides for fuller coverage as losses increase.

First proposed in the context of a price guarantee program, the examples that follow are for Puts (or profit share) structures, but they work equally well for Calls (or loss-share) programs.

To read the full version of this article with graphs:

Image Download the PDF Here
 
Flatlining
October 1, 1998. Also published in Insurance Finance & Investment, November 16, 1998.

What the heck is a zero beta asset?

Whaddaya mean new asset class?

Correlation coefficient?

You’ve got to be kidding me, adding earthquakes to my portfolio can actually reduce my risk!

Initial investor reaction to presentations about insurance-linked notes and their benefits in diversifying a portfolio often range from disbelief to scorn.  At best they are skeptical and we, like others, try to persuade them of our rationality with explanations about “efficient frontiers,” “diversification,” and “lower standard deviations”.  Pure as these theoretical arguments are, they are not always convincing.

To read the full version of this article with graphs:

Image Download the PDF Here
 
Echoes from the East
ECHOES FROM THE EAST
LESSONS FROM THE PAST
THOUGHTS FOR THE FUTURE

Lessons from the Past, Thoughts for the Future, September 1, 1998.

Some people think of 1992 as the year of Bill and Gennifer; others remember it as the year of Andrew and Inikki.

Current events have forced the former crowd to ruefully acknowledge that telltale events from the past have relevance for the present.

For the Andrew and Inikki crowd, however, current events have provided no such reminders.  Recent history in reinsurance terms has been benign.  Many of the lessons of 1992 have slipped off the radar screen.

To read the full version of this article with graphs:

Image Download the PDF Here
 
<< Start < Prev 11 12 13 Next > End >>

Results 101 - 110 of 123