



Return Indices
Quarterly Market Performance Report 
October 15, 2007
By: Morton N. Lane, President; Roger G. Beckwith, Vice President
A benign storm season (so far) has led to high returns for investors in cat bonds for the second year running. That is reflected in the quarterly report shown in the adjacent table. The (All Cat) quarterly return is 3.76%, which if repeated every quarter would result in an annual return of 15.04%. Given an average coupon of approximately L + 8%, this is only possible because of rising cat bond prices (falling yields or premiums). Historical Cat yields are plotted on page 6.
The adjacent Table also shows that we have subdivided the market returns into several categories. The first division is between pure Cat bonds, Life securities, and “Others” (i.e. nonCat, nonLife). These latter categories are presently small, but worth tracking as they will undoubtedly grow. Note that the Life category only includes those bonds that provide a “risk analysis” to investors. That is typically not the case, for example, for XXX securitizations which are not included here. The second division of the insurance linked securities (ILS) market is between those bonds originally issued at an investment grade rating versus those originally issued at subinvestment grade, i.e., below BBB. Many hedge funds seek high returns and do not invest in highly rated bonds, so a subinvestment grade index may be more reflective of their activity. Of course, funds also apply leverage.
To read the full version of this article with graphs:
Download the PDF Here

Developing LFC Return Indices 
August 14, 2007
By: Morton N. Lane, President; Roger G. Beckwith, Vice President; Jason Overbey
It is a nontrivial exercise to construct a set of indices representing the world of Insurance Linked Securities (ILS). And, at the end of the exercise, there is neither a unique nor a precise formula for the perfect index.
In case this observation causes undue distress, it is well to be reminded of the variety of indices used to represent the US stock market. The Dow Jones Index is a priceweighted index of 30 stocks. At the other end of the spectrum, the Wilshire 5000 index offers market capitalizationweighted indices related to both total capitalization and float weighted capitalization. The S&P 500 index is floatweighted and the NASDAQ 100 is a “modified” market weighted index. Each captures different aspects of the market and over time consumers have found utility in each of them.
To read the full version of this article with graphs:
Download the PDF Here

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