A Year of Structuring Furiously |
Promises, Promises, January 31, 1997. Also Published in Energy Insurance Review, Spring 1997.
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If it's good enough for Warren Buffett... |
December 15, 1996.
On
November 18, Chuck Quackenbush, the California Insurance Commissioner,
announced that Berkshire Hathaway would underwrite an entire layer of
the California Earthquake Authority (CEA). This layer, $1.5 billion XS
$7 billion, was originally intended to be the underpinning for the
precedent setting California Earthquake Bond. This bond was seen as a
defining moment for the direct entry of capital markets into
reinsurance and the subsequent securitization and derivatization of
insurance. It is obviously a great disappointment to Morgan Stanley,
the bond underwriter.
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November 26, 1996. Also published in The Risk Financier, May 1997.
Three
times in the last ten years, annual aggregate catastrophic losses for
the entire US, as measured by PCS, have exceeded $8 billion* (1994, $16
billion; 1992, $27 billion; and 1989, $14 billion). Prior to 1989 no
year’s aggregate exceeded that level. In 1995, losses approached $7.8
billion. Losses for the first eleven months of 1996 are $6.8 billion.
Actual numbers are illustrated in the graph on the following page.
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Strategy for the Grand National |
November 12, 1996.
Introduction of the new National Annual PCS contract (October 7, 1996) makes for some interesting trading opportunities.
Consider the following trade:
Sell the 1997 National Annual 80/100 call spread at 9.0 points Buy the 1997 Western Annual 80/100 call spread for 2.1 points Buy the 1997 Eastern Third Quarter 80/100 for 2.5 points for a credit for the position of 4.4 points.
QUESTION: Is a 22% RoL enough return for the non-western, non-hurricane quarter U.S. annual aggregate risk?
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