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Beyond Convergence, Towards Integration
August 29, 2008

By: Morton N. Lane, President

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Capital Markets Reinsurance Inc.
August 29, 2008

By: Morton N. Lane, President

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The Measurement of ILS Returns
August 29, 2008

By: Morton N. Lane, President

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Quarterly Market Performance Report - Q2 2008
June 30, 2008

By: Morton N. Lane, President; Roger G. Beckwith, Vice President

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What Price ILS?

March 31, 2008

By: Morton N. Lane, President; Roger G. Beckwith, Vice President

The twelve months to Q1 2008 (our typical analysis period) has seen more than $7.3 billion new ILS come to market. This is a record. One senses that the ILS market is now an established part of the reinsurance and retrocessional scene to be used by insurers and reinsurers alike as tools in their risk management deliberations. Indeed, as the ILS tool was taken up more and more in the current climate, some tools were used less. For example, sidecars, one of the 2006-2007 tools de jour, dropped in use. New equity issue and new company listings, also tools de jour in 2006 and 2007, were replaced by share buy-backs in 2008. Evidently the capital cycle has turned. Next we might see acquisition and consolidation. The hard market of 2006-2007 has given way to a softer 2008. This is seen directly in prices of new ILS, a subject we turn to in greater detail below, but it is also seen in structures of the ILS being issued.

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Quarterly Market Performance Report - Q1 2008
March 31, 2008

By: Morton N. Lane, President; Roger G. Beckwith, Vice President

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Quarterly Market Performance Report – Q4 2007
January 15, 2008

By: Morton N. Lane, President; Roger G. Beckwith, Vice President

A fourth quarter with few catastrophes and rapidly softening prices has made for excellent mark-to-market total returns of our (All Cat) index of ILS securities (Tables 1 & 2). A fourth quarter total return of 3.08% completes a twelve month compound return of 14.86% for 2007. This is the highest calendar annual return in our six year recorded history. It would also be the highest calendar annual return for those investors confining their attention to all sub-investment grade cat bonds. The sub-investment grade index shows a quarterly total return of 3.46% for a twelve month 2007 compound return of 16.23%.

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Revealing Reinsurer’s Risk Preferences
June 1, 2007

By: Morton N. Lane, President

The objective of this paper1 is to examine the risk preferences of property catastrophe reinsurers. It is an empirical exercise and is focused on catastrophe reinsurance, particularly of the Bermuda companies. It is also a speculative paper. It is not clear whether trying to infer risk preferences from operating results is even possible, especially when such results have very short histories, in most cases of less than ten years2.

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A Half Term Report for 2007 Securitizations
October 31, 2007

By: Morton N. Lane, President; Roger G. Beckwith, Vice President

It has been our practice to issue an annual report each March detailing the activity in the securitization market in the preceding 12 months, a Q1 to Q1 report. However, the pace of issuance has quickened and behooves us to issue an interim report half way through our usual cycle1. During the past half year $6 billion of cat securitizations have been placed in the market almost exceeding that for the preceding 12 months. Included in that total are some sizable issues by Allstate, Travelers and State Farm. If nothing else signifies the ILS market’s coming of age, it is perhaps the entry of the largest of US insurers into the market.

Included in that total of $6 billion are several items worthy of note. First, there are some $1.4 billion of “loans” as opposed to “securities” – perhaps a victory of form over substance. Second, there are two CDO structures, one of which is static, Fremantle, duplicating the Bay Haven success, and one very original structure which is an actively managed CDO, Gamut. Third, there is a higher percentage of “indemnity” deals than we have seen in a long time. This is without including the totals from outstanding sidecars which are pure indemnity transactions. Finally, the last six months saw the introduction of the first multi-sovereign issue, the Caribbean Catastrophe Risk Insurance Facility (CCRIF).

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Quarterly Market Performance Report
October 15, 2007

By: Morton N. Lane, President; Roger G. Beckwith, Vice President

A benign storm season (so far) has led to high returns for investors in cat bonds for the second year running. That is reflected in the quarterly report shown in the adjacent table. The (All Cat) quarterly return is 3.76%, which if repeated every quarter would result in an annual return of 15.04%. Given an average coupon of approximately L + 8%, this is only possible because of rising cat bond prices (falling yields or premiums). Historical Cat yields are plotted on page 6.

The adjacent Table also shows that we have subdivided the market returns into several categories. The first division is between pure Cat bonds, Life securities, and “Others” (i.e. non-Cat, non-Life). These latter categories are presently small, but worth tracking as they will undoubtedly grow. Note that the Life category only includes those bonds that provide a “risk analysis” to investors. That is typically not the case, for example, for XXX securitizations which are not included here. The second division of the insurance linked securities (ILS) market is between those bonds originally issued at an investment grade rating versus those originally issued at sub-investment grade, i.e., below BBB-. Many hedge funds seek high returns and do not invest in highly rated bonds, so a sub-investment grade index may be more reflective of their activity. Of course, funds also apply leverage.

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