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Complete Listing of Publications With Most Recent Article First
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Over the Top, But Not Off the Boil |
November 20, 2006
By: Morton N. Lane, President
Inour April 2006 review of insurance securitization “How High is Up?” weoffered a view of an index of reinsurance price shifts over time. Thatperspective allowed us to observe that premiums were at historic highsand close to their tops. If anything, we were premature in thatassessment. The months immediately after our paper saw a frenzy ofpre-storm season activity which resulted in peak prices in June andJuly of this year.
The question now at hand, however, is what prices to expect in the January 2007 renewals?
Theindustry traditionally gauges renewal prices at its annual gatheringsin Monte Carlo, Baden Baden and the PCI Conference, and this year’sverdict seems to be that this will be a “hard” renewal, i.e., priceswill remain high. However, that has to be qualified. It certainly willbe hard compared to last January, but how hard will it be compared tothe mid-year activity? There the answer is more vague. Consensusappears to be that prices will not be quite as high as mid-year butwill remain strong – over the top, but not off the boil, so to speak.
To read the full version of this article with graphs:
 Download the PDF Here
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April 21, 2006
By: Morton N. Lane, President and Roger Beckwith, Vice President
As this is written, there is a constellation ofhighs in the financial markets. The stockmarket is near a 5year high, gold is at a 25year high, US government bond yields are ata 4 year high, oil is at all time highs andreinsurance costs are at a 12 year high. Wecould have thrown in housing andcommodities for good measure, but whateveris in this constellation, we make the confidentprediction that it will not last. That isespecially true of the current high level ofreinsurance prices, especially if the upcomingstorm season is benign. Absent a quiet seasonall bets are off. As it is, however, the currenthuge increases in insurance rates is a signal toreluctant capital to “come on in, the water isfine”. As we reported in What Katrina hathWrought, Jan. 2006, capital markets haveresponded to the tune of some $20 billion bythe end of 2005. It was not enough, becauseperhaps of the attractions of other markets,and the welcome flags of high premiumshave been hoisted even higher.
To read the full version of this article with graphs:
Download the PDF Here |
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What Katrina hath Wrought |
January 6, 2006
By: Morton N. Lane, President
Itis now more than four months since those three wicked witches of thewest, Katrina, Rita, and Wilma, devastated the Gulf of Mexico and itssurrounding coast line. Collectively, according to Property ClaimsService (Nov. 28), these storms caused over $50 billion dollars worthof insured loss and multiples of that in non-insured losses. And, justas the physical landscape has changed but is slowly recovering, thefinancial landscape in the world of insurance has shifted and is beingrepaired. Insured losses have rippled and are rippling through theprimary insurance market, the reinsurance market, the retrocessionalmarket and the hybrid market (i.e., cat bonds, insurance-linkedsecurities, industry loss warranties and the like). Keeping track ofthese changes is not easy, but it is important. Predicting the shapeof things to come as a result of change is, hopefully, easier thanforecasting a storm track, but the consequences for participants in anyof these markets can be just as severe.
To read the full version of this article with graphs:
Download the PDF Here |
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An Introduction to the Benefits… |
June 2, 2006
By: Morton N. Lane, President; Jerome Kreuser
The use of optimizing models for portfolio selection and construction in the context of insurance is relatively new. Investment portfolio managers regularly rely on optimization, but underwriters are much more likely to use good old fashion trial and error, with some admittedly quite sophisticated, simulation techniques to developing underwriting portfolio strategies. The unique characteristics of insurance risk, e.g. long tails, one sided correlations etc, did not lend themselves to early optimization models but, certain technical breakthroughs have advanced optimization modeling and insurance risk is now a potentially important application. Moreover, once adopted, optimization techniques have considerable informational benefits over simulation.
The purpose of this paper is to illustrate these benefits. We do this in two ways. First by tracing out the numerical implications with a simple practical application; second, by introducing some of the algebra4 necessary to extract the benefits in more general and complicated cases. The techniques have been successfully applied in several large scale real situations and further technical details will be forthcoming in subsequent papers
To read the full version of this article with graphs:
Download the PDF Here <
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Unlovely Rita's Market Meter |
September 24, 2005
By: Morton N. Lane, President
Thefollowing tables update the exhibits from last week’s note “Respondingto Katrina” in light of the potential impact of hurricane Rita on theTexas – Louisiana coast. The message of the markets as of Fridayevening, when exact landfall and strength was unknown, is contained inthese updated tables.
To read the full version of this article with graphs:
Download the PDF Here |
September 16, 2005
By: Morton N. Lane, President
As
of this writing it has been two and one half weeks since Katrina first
made landfall (in Florida) and two weeks since Louisiana and New
Orleans suffered their landfall and subsequent devastation. And, as of
yet, no one has a definitive estimate of the insured losses that will
be suffered by the insurance and reinsurance industry as a result of
Katrina. The now most widely quoted estimate is by Risk Management
Services (RMS) who released an estimate to their clients on Friday,
September 9th that the total industry losses would be between $40
billion and $60 billion. Shockingly high, but it is not exactly
precise.
To read the full version of this article with graphs:
Download the PDF Here
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Arbor I-Xth Series - Still a Win-Win? |
September 1, 2005
By: Morton Lane, PhD
On
Aug. 19, Swiss Re announced the tenth issue in its Arbor I series.
Interest is currently being solicited and the contract will settle on
Sept. 15, 2005. Strictly, “being solicited” is inaccurate.
Technically, and more accurately, the window is open for investors to
express any interest they have at the offered price. Swiss Re is
agnostic about whether they would want more or less at that price. It
has happened before that Swiss Re has announced a price and received no
bids (Sakura in its sixth take down in September 2004). It may happen
again given that hurricane Katrina may spook investors. However, one
question we raise here is whether Arbor I is a fair deal at the current
price. Given the time of writing it is reasonable to ask the question
in two parts. First was the pre-Katrina price reasonable? Second, how
does Katrina affect the evaluation now (Sept 1)?
To read the full version of this article with graphs:
Download the PDF Here
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A Look at Avalon Re and ILS Pricing at Mid-Year |
September 1, 2005
By: Morton N. Lane, PhD
In
Arthurian legend Avalon was the island paradise in the western seas to
which King Arthur went at his death. In naming its inaugural insurance
linked security (ILS) Avalon, Oil Casualty Insurance Ltd. (OCIL) may
have been trying to invoke the calming effect of a (risk-free?)
paradise reached with this instrument, or it may have been alluding to
(shareholders in) western seas. Then again it may have just been a
colorful first letter of the alphabet for what will be a series of such
ILS. Whatever its descriptive intention, however, Avalon has
transported the world of ILS to a new insurance arena, namely the
securitization of liability risk. Heretofore, ILS have been dominated
by catastrophe bonds, or at the very least short-tailed risk. Avalon
has changed that. It has opened the door to a wider class of
securitization of insurance risk – general liability.
To read the full version of this article with graphs:
Download the PDF Here
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April 30, 2005
By: Morton N. Lane, President and Roger G. Beckwith, Vice President Lane Financial LLC
It
has been a mantra for several years that the insurance and capital
markets will converge. The arguments are too compelling. Capital
markets are looking for uncorrelated risk, “searching for alpha”;
insurance markets are always looking for sources of risk-taking
capital. Insurance risks are, by and large, uncorrelated with the
financial market and, as of this writing, capital markets are searching
for higher rewards (the usual complement of higher risk). This
juxtaposition of sound rationale and contemporary circumstance has
caused a rapid advance in insurance/capital market convergence in the
last twelve months. It is no longer a speculation about if there will
be convergence. It is a situation, as sportscasters like to say, of
“Game On!”
To read the full version of this article with graphs:
Download the PDF Here
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August 15, 2004
By: Morton Lane, Ph.D.
Aviation
insurers are often asked to provide limits of liability to insureds (a)
that are large and (b) whose exposures are difficult to assess. This
is particularly true of providers of coverage for product manufacturers
and other products liability. The question arises, for several
insureds with little or no loss experience, how should such coverage be
priced? In particular, is there some minimum price of limit?
To read the full version of this article with graphs:
Download the PDF Here
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