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Annual Insurance Securitization Overviews
What Price ILS?

March 31, 2008

By: Morton N. Lane, President; Roger G. Beckwith, Vice President

The twelve months to Q1 2008 (our typical analysis period) has seen more than $7.3 billion new ILS come to market. This is a record. One senses that the ILS market is now an established part of the reinsurance and retrocessional scene to be used by insurers and reinsurers alike as tools in their risk management deliberations. Indeed, as the ILS tool was taken up more and more in the current climate, some tools were used less. For example, sidecars, one of the 2006-2007 tools de jour, dropped in use. New equity issue and new company listings, also tools de jour in 2006 and 2007, were replaced by share buy-backs in 2008. Evidently the capital cycle has turned. Next we might see acquisition and consolidation. The hard market of 2006-2007 has given way to a softer 2008. This is seen directly in prices of new ILS, a subject we turn to in greater detail below, but it is also seen in structures of the ILS being issued.

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That was the Year that was!
April 20, 2007
The 2007 Review of the Insurance Securitization Market

By: Morton N. Lane, President and Roger G. Beckwith, Vice President

The past 18 months of frenetic activity in the Insurance-Linked Securities (ILS) market seems to have come to an end. One is tempted to ask, is that all there is?

Is this a halt, or a pause that refreshes? The precipitating causes of the 2006 rush of activity were the losses from Katrina, Wilma and Rita. The end seems to have been precipitated by a) the absence of significant 2006 losses, b) the restoration of capital1 equilibrium and finally, c) the actions of the state of Florida to abandon private markets and to nationalize (is that the correct word for state level application?) catastrophe risk. The first two of these reasons are to be expected, the last is a bit of a shock to the reinsurance body politic. And, worse, it may have been entirely unnecessary. Politicians were stampeded to action by high insurance prices within the state during 2006. However, a look at the chart reproduced here as Figure 1 shows quite clearly that prices peaked in July last year and have been declining ever since. With another loss free year they show every prospect of a return to pre-Katrina levels. But if there is another violent year, why should they? It will reflect a new reality, as subsidizing Florida taxpayers will no doubt learn to their cost. 

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How High is Up?
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.

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Game On!
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!”

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Review of Trends in Insurance Securitization 2004
April 30, 2004

Presented at the 2004 Enterprise Risk Management Symposium sponsored by the Casualty Actuarial Society, the Society of Actuaries and Georgia State University.

By:  Morton Lane, President and Roger Beckwith, Vice President
Lane Financial LLC

The last twelve months have been something of a breakout year for insurance securitization. By our estimate $1.9 billion of securities were issued between 4/2003 and 3/2003 (our usual measuring interval). This represents a 50% increase over the previously most active year to date (1999). Sixteen securities, as defined herein, constitute the record issuance. But, as always, such measurements are subject to specification definition. During this period at least three other securities were issued that have not been included in this report, principally because of a lack of readily available data. Had they been included the issuance level would have been an additional $900 million.

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Review of Trends in Insurance Securitization 2003
April 25, 2003

By Morton N. Lane, Ph.D. and Roger G. Beckwith

INTRODUCTION
The year, 2002, was a record for insur¬ance securitization.  It’s official.  According to Marsh and McLennan  $1.22 billion bonds were issued in 2002 versus $1.136 billion in 2000.  Our own readings of history are slightly off calendar, usually measuring the twelve months in between 1st Quarter ends.  Never¬theless, like Marsh we believe that the most recent twelve months repre¬sent something of an up-tick in activity.  Like the margin by which the Marsh record was set, the magnitude of the up-tick is small, tiny in fact, but potentially a significant harbinger of directional change.  In truth, these are crumbs of comfort for those toiling in the vineyards of insurance securitization.  The harvest from a great deal of intellectual and financial investment still eludes us.
Notwithstanding, this paper records the trends that have occurred during our last twelve months and the messages they contain for that brighter securitization future that surely lies ahead.
Two significant events occurred during 2002/3.  Vivendi issued a cat bond protecting their own (insurable) exposure to earthquake, by bypassing the insurance market.  This disintermediation of the insurance market is only the second issuance directly by an insured.  The second significant event was the introduction by Swiss Re of a shelf registration that allows open ended issuance of insurance linked securities up to a fixed amount for a fixed period of time.  The essential feature of this arrangement is that it saves on issuance costs, which have been one of the bad raps on securitization.

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Review of Trends in Insurance Securitization 2002
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.

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Meanwhile, Back at the Price Drawing Board
August 23, 2002

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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.

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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:

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