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Annual Insurance Securitization Overviews
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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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.

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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.

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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.

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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.

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A Year of Structuring Furiously
Promises, Promises, January 31, 1997. Also Published in Energy Insurance Review, Spring 1997.

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