Alternative Risk Strategies

Edited by Morton Lane, Risk Books, London 2002. To read the full version of this article with graphs: Download the PDF Here

 

Alternative Capital Sources

December 15, 2002, Excerpt from Rational Reinsurance Buying, Nick Golden, ed. Risk Books 2002 By Morton N. Lane, Ph.D. INTRODUCTION The above definition of “capital” captures two things; first, the essential meaning of capital as the resource necessary for production of wealth and, second, the fact that capital can mean many things to many people.  On the other hand, one thing that may be missing is any reference to the relation between risk and capital.  The definition was written before the modern capital market theories were expounded, yet it does capture the essentials —present value of income, etc.—before the significant contributions of Black, Scholes, Merton and other modern finance theorists formalized the concepts.  The theories contributed by these Nobel Laureates added to our general understanding of capital markets, and the insights allowed a proliferation of new, innovative instruments by which capital can be accessed and managed. Swaps, options, futures, collateralized debt obligations (CDOs), converts, caps, floors, collars, Remics, collateralized mortgage obligations (CMOs) and derivatives of all kinds are all aids in the use of capital to produce wealth. To read the full version of this article with graphs: Download the PDF Here

 

An Analyst's View of the Aviation Insurance Industry

September 1, 2002 By Morton N. Lane, Ph.D.   INTRODUCTION The events of September 11, 2001 generated devastating monetary losses for the aviation insurance industry.  Figure 1 shows the true extent of that loss. Minor as these monetary losses are com¬pared the personal trauma suffered by individuals, families and America as a whole, they have produced their own trauma-induced monetary responses.  Future aviation insurance prices have risen dramatically, easily doubling and in some cases quintupling. Exclu¬sions have been added to policies and certain cover¬ages have been specifically withdrawn from the market.  More interestingly, having survived and put in place temporary solutions to enable the market to move forward, the industry through this conference and numerous internal reviews has begun to ask itself how it should charge for its services, whether it has sufficient capital and if past pricing practices should be perpetuated. To read the full version of this article with graphs: Download the PDF Here

 

Review of Trends in Insurance Securitization

August 23, 2002 By Morton N. Lane, Ph.D. and Roger G. Beckwith INTRODUCTION The past year was dramatic in terms of capital-raising and new issuance for the reinsurance industry.  As Figure 1 shows, at least 41 companies raised equity and/or debt between September 2001 and January 2002.  Unfortunately, not enough of the drama that occurred there was reflected on the securitization stage.  During the 12 months April 2001 to March 2002, only $860 million of insurance securitizations were issued, representing a little over 4% of the traditional market’s capital-raising effort.  While events of the magnitude of 9/11 were expected to give spur to the still-developing securitization market, the concerns of the traditional market were too consuming to even think about cat bonds for very long.  New funds flowed all too easily to the traditional market; there was little need for new types of capital. To read the full version of this article with graphs:  Download the PDF Here

 

Meanwhile, Back at the Price Drawing Board

August 23, 2002 To read the full version of this article with graphs: Download the PDF Here

 

Recognizing the Costs of Options and Disguising the Cost of Insurance

August 2, 2002 By Morton N. Lane, Ph.D. In one of those delicious ironies that occur from time to time, the August 1st edition of The Wall Street Journal contained two  excellent articles−one about options, the other about insurance−which when juxtaposed, show the ever-present nature of contradictions between finance theory and current corporate practice.  The contradictions exist side by side even in the full glare of the current soul searching environment.  To read the full version of this article with graphs:  Download the PDF Here

 

Whither Securitization

April 30, 2002, Excerpt from Alternative Risk Strategies, Morton Lane, ed., Risk Books, 2002 By Morton N. Lane INTRODUCTION [This paper is the closing editorial chapter of a book entitled Alternative Risk Strategies, edited by Morton Lane, published by Risk Books and due for publication in May 2002.  Details of the multi-contributor book can be found on www.riskbooks.com.  The substance of the chapter was also the subject of Morton Lane’s address to the Bond Market Association’s Second Annual Meeting at Turnberry Isle in March 2002.  While there are references to particular chapters in the book, this chapter stands as a separate piece.] To read the full version of this article with graphs:  Download the PDF Here