December 31, 2008

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

ILS manufacturing plants haven’t produced much in the last four months. In fact, for holders of ILS portfolios things have gone into reverse. Some bonds have matured, others have been called early (Redwood, Blue Wings and GlobeCat LAQ). The par value of deals in our index stands at $11.6 billion, a drop of 10.3% from outstandings in the index at the end of the third quarter of 2008. In contrast to the manufacturing plants in Detroit, however, the problem is not a lack of demand. Instead there is continued debate about the best collateral model to produce, and, we suspect, indecision on the part of risk suppliers about their protection needs as they view their own wrecked balance sheets. Our prediction is that this will change by the end of the first quarter.

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