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Complete Listing of Publications With Most Recent Article First
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:
 Download the PDF Here
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TMCC vs. USAA, August 31, 1998.
Any
paper titled as such should probably begin with, "It was the best of
deals, it was the worst of deals," but that is not the case with these
two securities. Rather it is the case that these two securities
represent the two largest, and similarly sized, transactions to date in
the burgeoning world of insurance securitization and yet display some
remarkable contrasts.
To read the full version of this article with graphs:
Download the PDF Here
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Warren Buffett on Risk - Or Risky Ground? |
May 15, 1998.
Mr.
Buffett deserves the world’s accolades when it comes to investing. He
is the nonpareil equity investor. When he speaks, the world, and I,
properly pay attention.
Permit me, however, to take issue with
several of his recent comments on bonds in general, and catastrophe
bonds in particular, which appeared in Schiff’s and are excerpted
alongside.
To read the full version of this article with graphs:
Download the PDF Here
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Price, Risk and Ratings for Insurance-Linked Notes |
May 5, 1998. Published in "Rethinking Insurance Regulation 1998" conference proceedings featured in Derivatives Quarterly.
Morton N. Lane, Ph.D.
President & CEO
Sedgwick Lane Financial, LLC
In
the past two years, more than $1 billion of insurance risk has been
transferred directly to the capital markets in the form of a dozen or
more insurance-linked notes and catastrophe bonds. This new form of
risk transfer, bypassing the conventional reinsurance market, is
expected to grow to an annual issuance of $5-$10 billion by the end of
the decade, making insurance-linked notes a new and significant asset
class.
To read the full version of this article with graphs:
Downlaod the PDF Here
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Is this an arbitrage I see before me? |
April 30, 1998. Also published in The Risk Financier, June 1998.
Open
interest at The Chicago Board of Trade (CBOT) jumped almost 20 percent
during the month of April and now stands at 22,000 contracts. Some
half-dozen transactions have now been consummated at The Bermuda
Commodities Exchange (BCE) and open interest has become visible. At
The Catastrophe Risk Exchange (CATEX), message activity (i.e.,
inquiries and responses) has jumped 32 percent since January. Clearly,
increasing numbers of people are beginning to pay attention to these
new risk transfer markets.
To read the full version of this article with graphs:
Download the PDF Here
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Arbitraging Insurance Risks v1 |
December 22, 1998
On
July 16, 1997, Swiss Re Financial Products, in cooperation with Credit
Suisse First Boston completed a bond offering of $137 million in
California Earthquake Bonds. The total amount of insurance risk
transferred in the bond was $112.2 million. The size of the bond made
it the second largest insurance securitization of the seven completed
prior to that date. Previous issues sponsored by Goldman Sachs, Credit
Suisse, and Citibank, had been based on a book of underwritings of
particular ceding insurers, namely St. Paul Re, USAA, Winterthur and
Hannover Re. The Swiss Re California Earthquake Bond in contrast was
similar to the previous issues sponsored by both Sedgwick Lane
Financial (for Reliance) and AIG, namely it was based on index of
insured losses. As such, it was the largest indexed insurance-linked
note.
To read the full version of this article with graphs:
Download the PDF Here
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Arbitraging Insurance Risk v2 |
July 18, 1997. Also published in Global Reinsurance, Vol. 6, Issue 4, Monte Carlo 1997.
Investors
who intended to purchase the recently issued United Services Automobile
Association (USAA) Insurance-Linked Note needed to satisfy themselves
that the pricing of this novel security was appropriate. The
investment bankers involved in the transaction (Goldman Sachs, Merrill
Lynch and Lehman Brothers) needed to assure investors that the price
was fair, or even superior. Among the reassurances given were that (a)
USAA itself would share in at least 20 percent of the subject risk
alongside the investor, (b) an independent auditor would assess the
claims, (c) an independent index (a meteorological trigger of storm
categories) would be required, (d) a third-party risk-assessment firm
(Applied Insurance Research) would provide estimates of the probability
of such storms and their likely effect on USAA’s book of business, (e)
a note rating would be provided by the recognized independent rating
agencies for certain of the securities, and (f) finally, and perhaps
most comforting, that reinsurers themselves (experts on the pricing of
such risks) were buying the notes for their own portfolio. Evidently,
all of these efforts worked. The note (issued June 16) was the largest
Insured-Linked Note issued to date and was oversubscribed by a factor
of nearly 2.5:1.0.
To read the full version of this article with graphs:
Download the PDF Here
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A New Wall and LaSalle Street Cocktail (With a Slice of Lime Street) |
July 15, 1997. Also published in CFR Magazine, July-Aug. 1997 and The Risk Financier, November 1997
What
a difference a year makes! Last November CFO Magazine published a
headline in its Newswatch column, “Disaster Bonds are a Catastrophe”
(CFO November 1996). The headline summed up a common sentiment at the
time: that the nascent effort to securitize insurance risk, once
promised to be the next great wave of the future, was running out of
gas. It was indeed their winter of discontent.
To read the full version of this article with graphs:
Download the PDF Here
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June 30, 1997.
Insurance
companies writing property covers in the US often find themselves with
concentration of risks in catastrophe-prone areas. They “hedge” such
risks by buying reinsurance. Even the reinsurers themselves “hedge” by
buying retrocessional covers. Now, with the PCS Option contract at the
Chicago Board of Trade “synthetic” insurers (i.e., traders who write
call options or call spreads) can protect against regional exposures by
“hedging” or buying back regional contracts.
To read the full version of this article with graphs:
Download the PDF Here
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A Year of Structuring Furiously |
Promises, Promises, January 31, 1997. Also Published in Energy Insurance Review, Spring 1997.
To read the full version of this article with graphs:
Download the PDF Here
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