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Complete Listing of Publications With Most Recent Article First
September 3, 2001.
By Morton N. Lane and Roger G Beckwith
INTRODUCTION
In
November 2000 Munich Re entered into a financial swap transaction with
a special purpose vehicle, PRIME Capital Hurricane Ltd. (PRIME), to
protect itself against losses resulting from severe hurricanes hitting
defined areas of New York and Miami. PRIME in turn funded its swap (or
counter party) obligation by issuing securities to capital market
investors. It issued $6 million Class B preference shares and $159
million Floating Rate Notes. PRIME agreed to pay its note purchasers
an interest rate of LIBOR plus 650 basis points quarterly for the next
three years. At the end of the three years the investors receive
return of their principal, if no hurricanes of the requisite intensity
have blown in the designated areas of New York and Miami. If an
adverse wind has blown, investors could lose all or part of their
principal.
To read the full version of this article with graphs:
 Download the PDF Here
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Analyzing the Pricing of the 2001 Risk-Linked Securities Transactions |
July 31, 2001. Presented at the IIASA-DPRI meeting on Integrated Disaster Management in Laxenberg, Austria, August 2001.
By Morton N. Lane
INTRODUCTION
Ten
risk-linked securities (a.k.a. cat bonds) were issued between April 1,
2000 and March 31, 2001,2 representing almost 25% of the risk-linked
securities that have ever been issued. The reinsurance risks embedded
in these securities were similar to exposures contained in the previous
year’s issues (wind and quake), with new forms added and some new risks
covered. The exact character of the exposures was examined in an
earlier paper “Current Trends in Risk-Linked Securitizations”,
available on our web site (www.LaneFinancialLLC.com). The purpose of
this companion piece is to continue the analysis of these securities,
but to focus exclusively on their pricing.
To read the full version of this article with graphs:
Download the PDF Here
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Current Trends in Risk-Linked Securitizations |
April 30, 2001. Also published in Risk Magazine, August 2001
By Morton N. Lane and Roger G. Beckwith
INTRODUCTION
Towards
the end of the year 2000 any paper describing current trends in
insurance-linked (now fashionably dubbed risk-linked) securitization
would have been short. There was one trend to describe them:
declining -- to the point of disappearing -- issuance. In November,
however, Munich Re and AGF rode to the rescue. At 12-month end, given
our off-calendar summaries of activities (March to March), the score is
not so bad. Given completion of SR Wind, initiated in March but
completed in April, the box score for the last year is:
To read the full version of this article with graphs:
Download the PDF Here
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Stirrings in the Secondary Market |
March 8, 2001.
By Morton N. Lane
INTRODUCTION
There
is some evidence that the secondary market for insurance-linked
securities (ILS) is beginning to stir. It is faint, but we think it is
important. Viable secondary markets contain important intelligence
about underlying trends. In the ILS market, where underlying
(reinsurance) price trends are hard for outsiders to discern, secondary
market prices could provide valuable investor information. This allows
investors to better evaluate new transactions. It also gives issuers a
better insight into what new issue prices would be acceptable in the
capital market. So far, the still nascent ILS market has provided
little price information outside of new issue prices.
To read the full version of this article with graphs:
Download the PDF Here
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CDO's as Self-Contained Reinsurance Structures |
December 10, 2000
By Morton N. Lane
INTRODUCTION
“Convergence”
between the capital markets and reinsurance markets is not the hot
topic it once was. However, “convergence” has led to this: the prime
mover of insurance risk via securitizations is an investment bank
(Goldman Sachs) rather than an intermediary; and, one of the most
active leveraged underwriters of capital market credit risk is a
reinsurer (Swiss Re) rather than a hedge fund or bank. Both phenomena
provide testimony to the institutional consequences of “convergence”
but other effects, particularly product design, are also continuing
apace. One such product is the Collateralized Debt Obligation (CDO) –
subspecies of which are Collateralized Bond Obligations (CBOs) and
Collateralized Loan Obligations (CLOs).
To read the full version of this article with graphs:
Download the PDF Here
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A Case Study in Credit Analysis |
Capital One (or Capital Two)?, July 31, 2000
By Morton N. Lane
INTRODUCTION
It was the best of reports; it was the worst of reports.
We
stretch the literary point, but, on July 21, 2000, Morgan Stanley Dean
Witter (MSDS) and Grant’s Interest Rate Observer (Grant’s) opinioned on
the credit worthiness of Capital One Financial Corp (COF). For the big
institution, the glass was half full; for the newsletter, it was half
empty. The full text of the evaluations is below, together with COF’s
financials. At its core, however, their difference can be seen from
the following excerpts.
Clearly, there is a divergence of view.
Although neither suggests a problem credit, MSDW would charge ahead –
invest more. Grant’s suggests caution – lighten up.
To read the full version of this article with graphs:
Download the PDF Here
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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:
Download the PDF Here
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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:
Download the PDF Here
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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:
Download the PDF Here
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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:
Download the PDF Here
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