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Annual Insurance Securitization Overviews
More Return; More Risk;

More Return; More Risk; Annual Review for the Four Quarters, Q2 2011 to Q1 2012

 

March 31, 2012


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

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Tail Tales, or Shifts in Market Price and Risk in a Volatile Year

October 14, 2011

By: Morton N. Lane, President

2011 has not been the worst loss year ever. Nor has it been the year with the biggest single loss. But it might be the one with the greatest variety of losses. Consider, between February and the end of the third quarter there have been losses from New Zealand earthquakes (two), a massive Japan earthquake and tsunami, a huge number of tornadic losses in Joplin, Tuscaloosa and throughout the Midwest, an earthquake in Virginia and a northeast hurricane (Irene). Through it all the ILS market shifted and adjusted in price. This short note is record of those shifts. However, the intent is more than just recording price shifts; we also hope to see how risk appetites also shift and change – or, conversely, how stable the risk appetite is.

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Prague Spring or Louisiana Morning?

Annual Review for the Four Quarters, Q2 2010 to Q1 2011

March 31, 2011

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


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Annual Review for the Four Quarters, Q2 2009 to Q1 2010

Annual Review for the Four Quarters, Q2 2009 to Q1 2010

April 16, 2010

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

It is our practice to release updated Tables and Graphics demonstrating trends and activity in the ILS markets on an off-cycle, Q2 to Q1, basis. This release contains those updated Tables and Graphics.


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Change We Can Believe In

Annual 2009 ILS Review and Q1 2009 Quarterly Performance Review

April, 2009

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

“Change we can believe in” was a very successful political campaign for 2008. Let’s hope it is just as successful for the ILS market in 2009. The “change” necessary for the ILS market involves the security of funds on deposit at Special Purpose Vehicles. The “belt and suspenders” protection the market thought it had, prior to the Lehman default, was found wanting. For four now infamous, ILS securities the belt (the Total Return Swap, TRS) broke with that default of Lehman but the suspenders (the collateral behind the swap) were then found to be of inquality. The old arrangement did not provide security to either cedants or investors. Pre-Lehman TRS mechanisms need “change” and the market is now preoccupied with deciding which change to believe in.


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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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