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1998
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Perfume of the Premium II |
December 21, 1998. Also published in Derivatives Quarterly, Spring 1999.
Shortly
after the introduction of insurance derivatives and the commencement of
their trading at The Chicago Board of Trade (CBOT), we began to analyze
catastrophe options by looking at the “implied loss distributions”
embedded in the traded prices. The results were recorded and described
in the proceedings of the 1995 Bowles Symposium, Georgia State
University, Atlanta, Georgia under the title, “The Perfume of the
Premium.”
To read the full version of this article with graphs:
 Download the PDF Here
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Isolating the Effects of the Price Cycle on the Lloyd's Global Index |
December 15, 1998. Also published in The Risk Financier, March 1999.
INSTRAT-UK
recently proposed an index of underwriting results based upon the
Lloyd’s Global result. Since the index applies to a broad range of
underwriting lines, it is a good gauge of the whole insurance market,
and, perhaps, a good hedge of particular underwriting results.
Interest has begun to focus on the prices at which options on this index might trade.
To read the full version of this article with graphs:
Download the PDF Here
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December 23, 1998
The
basic idea is very simple: Let the share for which the option (or
under) writer is responsible increase as the penetration of the layer
gets larger.
The purpose of this structure is to reduce the cost
of traditional excess of loss (or pure option) coverage. At the same
time, the structure reduces volatility and provides for fuller coverage
as losses increase.
First proposed in the context of a price
guarantee program, the examples that follow are for Puts (or profit
share) structures, but they work equally well for Calls (or loss-share)
programs.
To read the full version of this article with graphs:
Download the PDF Here
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October 1, 1998. Also published in Insurance Finance & Investment, November 16, 1998.
What the heck is a zero beta asset?
Whaddaya mean new asset class?
Correlation coefficient?
You’ve got to be kidding me, adding earthquakes to my portfolio can actually reduce my risk!
Initial
investor reaction to presentations about insurance-linked notes and
their benefits in diversifying a portfolio often range from disbelief
to scorn. At best they are skeptical and we, like others, try to
persuade them of our rationality with explanations about “efficient
frontiers,” “diversification,” and “lower standard deviations”. Pure
as these theoretical arguments are, they are not always convincing.
To read the full version of this article with graphs:
Download the PDF Here
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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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