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Annual Insurance Securitization Overviews
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!”
To read the full version of this article with graphs:
Download the PDF Here
|
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.
To read the full version of this article with graphs:
Download the PDF Here
|
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.
To read the full version of this article with graphs:
Download the PDF Here
|
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.
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 |
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.
To read the full version of this article with graphs:
Download the PDF Here
|
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:
To read the full version of this article with graphs:
Download the PDF Here
|
Pricing Risk Transfer Transactions |
June 9, 2000. Published in The Astin Bulletin, Winter 2000.
By Morton N. Lane
INTRODUCTION Should the pricing of reinsurance catastrophes be related to the price of the default risk embedded in corporate bonds?
If
not, why not? A risk is a risk is a risk, in whatever market it
appears. Shouldn’t the risk-prices in these different markets be
comparable? More basically perhaps, how should reinsurance prices and
bond prices be set? How does the market currently set them? These
questions are central to the inquiry contained in this paper.
To read the full version of this article with graphs:
Download the PDF Here
|
Trends in the Insurance-Linked Securities Market |
May 31, 2000. Also Published in Derivatives Quarterly, Fall 2000.
By Morton N. Lane and Roger G. Beckwith
INTRODUCTION There
is some debate about when the Insurance-Linked Securities (ILS) market
(a.k.a. Cat Bond market) began. Was it June 1992 with the
AIG-sponsored property-cat bond concept promoted by Merrill Lynch3?
Was it the end of 1992 when the CBOT launched its since-aborted ISO
contract? Or was it in 1995-96 with the first successful issuance of
an AIG-fronted PXRE property-cat portfolio deal with additional small
but successful portfolio deals from Georgetown Re and Reliance
National? Perhaps it was later in 1996 when USAA closed the first $500
million single-risk deal.
To read the full version of this article with graphs:
Download the PDF Here
|
Risk Cubes or Price, Risk and Ratings (Part II) |
March 15, 1999. Also published in The Journal of Risk Finance, Vol.1, No. 1, Fall 1999.
INTRODUCTION
Risk
is difficult to measure – so difficult that no single measure seems
robust enough for all circumstances. This is especially true of
measuring the risk contained in insurance-linked securities. Insurance
risk is usually asymmetrically skewed. As a consequence, traditional
capital market risk measures – expected loss, probability of default
and the standard deviation of return outcomes – are less than perfect
to the insurance task. Without a good risk measure, it is impossible
to compare the risk-adjusted pricing of insurance-linked notes on a
consistent basis. It is impossible to tell which securities are cheap
and which are expensive. It is impossible to decide on their value
relative to more traditional invest-ments.
To read the full version of this article with graphs:
Download the PDF Here |
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