Alternative (Re)insurance Strategies PDF
Preview Alternative (Re)insurance Strategies
Insurance-linked investments have proved Key chapters focus on: A Alternative resilient to the effects of the financial crisis. • Issuance and investment lte r • Developments in insurance-linked products n a Indicative of their low correlation with wider • Risk management tiv financial risk mid- and post-crisis, investments • Portfolio optimisation e in the (re)insurance market have multiplied and, • Structural considerations for insurance- (r (re)insurance in tandem with this increased attention, the linked securities e market has evolved and matured. )in s u Edited by Morton Lane, a leading industry r a Morton Lane’s new book, Alternative expert who has been involved in the n c (Re)insurance Strategies, captures the elements (re)insurance market for over 20 years, e of (re)insurance that make it distinct to other Alternative (Re)insurance Strategies captures the S Strategies capital markets. It shows how participants can decade-long transformation and expansion of tra give their product, be that a CWIL or sidecar, the insurance-linked investment and catastrophe te g its ‘edge’. The book encompasses the new bond market, as well as looking forward to the ie products, attitudes and frameworks that have emerging trends and future direction of the s been developed over the past decade, including market. 2nd Edition side pockets, fronting and collateralised reinsurance. This book is a focused review of the insurance securitisation market as practised by issuers, These insights into the market are written by direct investors and investment managers. E d the inventors of the market themselves, as well Designed for participants both experienced and ite EditEd By Morton LAnE as the practitioners who continue to innovate in new to the industry, it is unmatched in its depth d this fast-growing market. and breadth. b y Alternative (Re)insurance Strategies brings together Alternative (Re)insurance Strategies is the sequel M the extensive knowledge and experience of to Morton Lane’s Alternative Risk Strategies, o r renowned industry pioneers such as Richard widely acknowledged as the industry standard to n Sandor (Environmental Financial Products, for reinsurance professionals on its publication L LLC), Michael Millette (Goldman, Sachs & co), in 2002. a n Christopher Culp (Compass Lexecon), David e Lalonde (AIR Worldwide) and Tom Bolt (Lloyd’s This new edition is published on the 10th of London). anniversary of the first. PEFC Certified this book has been produced entirely from sustainable papers that are accredited as PEFC Fully Revised 10th Anniversary Edition compliant. www.pefc.org Alternative (Re)insurance Strategies 2ndED_10th_spine38.indd 1 23/11/2012 17:10 Alternative (Re)insurance Strategies Alternative (Re)insurance Strategies Edited by Morton Lane Published by Risk Books, a Division of Incisive Media Investments Ltd Incisive Media 32–34 Broadwick Street London W1A 2HG Tel: +44(0) 20 7316 9000 E-mail: [email protected] Sites: www.riskbooks.com www.incisivemedia.com © 2012 Incisive Media ISBN 978 1 906348 89 2 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Publisher: Nick Carver Editorial Development: Amy Jordan Commissioning Editor: Sarah Hastings Managing Editor: Lewis O’Sullivan Designer: Lisa Ling Copy-edited by MFE Editorial Typeset by Tricolour Design Printed and bound in the UK by Print On-Demand World-wide Conditions of sale All rights reserved. No part of this publication may be reproduced in any material form whether by photocopying or storing in any medium by electronic means whether or not transiently or incidentally to some other use for this publication without the prior written consent of the copy- right owner except in accordance with the provisions of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Limited of Saffron House, 6–10 Kirby Street, London EC1N 8TS, UK. Warning: the doing of any unauthorised act in relation to this work may result in both civil and criminal liability. Every effort has been made to ensure the accuracy of the text at the time of publication, this includes efforts to contact each author to ensure the accuracy of their details at publication is correct. However, no responsibility for loss occasioned to any person acting or refraining from acting as a result of the material contained in this publication will be accepted by the copyright owner, the editor, the authors or Incisive Media. Many of the product names contained in this publication are registered trade marks, and Risk Books has made every effort to print them with the capitalisation and punctuation used by the trademark owner. For reasons of textual clarity, it is not our house style to use symbols such as TM, ®, etc. However, the absence of such symbols should not be taken to indicate absence of trademark protection; anyone wishing to use product names in the public domain should first clear such use with the product owner. While best efforts have been intended for the preparation of this book, neither the publisher, the editor nor any of the potentially implicitly affiliated organisations accept responsibility for any errors, mistakes and or omissions it may provide or for any losses howsoever arising from or in reliance upon its information, meanings and interpretations by any parties. Contents About the Editor xi About the Authors xiii 1 Introduction 1 PART I: Perspectives on the Securitisation of (Re)insurance 15 2 A History of Direct Insurance-Linked Investments 17 Tom Bolt Lloyd’s of London 3 Good Derivatives: Why Securitisation of Insurance Risks Matters, and More 27 Richard L. Sandor; Sylvie Bouriaux Environmental Financial Products, LLC; Illinois State University PART II: Developments in Insurance-Linked Products 45 4 Convergence at High Noon: Catastrophe Risk in the Capital Markets in 2012 47 Michael J. Millette Goldman, Sachs & Co. 5 Industry Loss Warranties 75 Erik Manning Guy Carpenter & Company, LLC 6 Sidecars 85 André Perez Horseshoe Group 7 Fronting for Collateralised Reinsurance Capacity 103 Kathleen Faries Tokio Millennium Re PART III: Issuance: Buying Protection, Raising Capital 117 8 Risk Transformation Through Capital Markets 119 Martin Bisping Swiss Re v AlternAtive (re)insurAnce strAtegies 9 A Case Study of a Consistent ILS Issuer: USAA 137 Roger Beckwith; Morton Lane Lane Financial LLC PART IV: Agents of Issuance: the Facilitators 155 10 Issues and Issuance 157 Paul Schultz; Erin Lakshmanan Aon Benfield Securities 11 Advances in ILS Portfolio Management Analytics 177 Peter Nakada; Dominic Smith Risk Management Solutions, Inc. 12 Role of Catastrophe Risk Modelling in ILS 195 Brent Poliquin; David Lalonde AIR Worldwide PART V: Investing: Selling Protection, Providing Capital 219 13 Dedicated Hedge Funds 220 Frank Majors; Laura Taylor Nephila Capital 14 ILS Hedge Fund Business Models 241 John Seo Fermat Capital Management, LLC 15 Some Reflections on the ILS Market from an Institutional Investor Perspective 257 Bernard Van der Stichele PART VI: Reflections on ILS Structural Issues 267 16 Learning it the Hard Way: An Analysis of Cat Bond Investing Pitfalls 269 Cedric Edmonds Solidum Partners AG 17 Some Considerations with Collateralised Reinsurance and Side Pockets 295 Luca Albertini Leadenhall Capital Partners LLP 18 Legal and Transaction Structure Developments in ILS 315 Michael J. Pinsel; Bobbi O. Anderson Sidley Austin, LLP ; Elementum Advisors, LLC vi CONTENTS 19 Solvency II and the Implications for ILS and SPVs 335 Kathryn Morgan Fellow of the Institute of Actuaries PART VII: Risk Management and Portfolio Considerations 357 20 The “At-Risk” Metrics and Measures 359 Christopher L. Culp The University of Chicago Booth School of Business 21 Portfolio Optimisation with Insurance-Linked Asset Classes 393 Chris Parish; Pascal Karsenti; Adolfo Peña Nephila Capital; Nephila Advisors 22 ILS Market-Derived Metrics: Implications for Risk Adjustment Transforms and Capital Allocation 417 Morton Lane; Jerome Kreuser Lane Financial LLC; RisKontroller Global REFERENCE MATERIAL 439 i PCS Industry Loss Estimates 441 Gary Kerney Verisk Insurance Solutions ii The PERILS Index 451 Luzi Hitz; Eduard Held PERILS AG iii The Basics of Cat Bond Mathematics and ILS Pricing 461 Craig Bonder Rochdale Securities iv Insurance as a Second Language 469 Andrew Martin Optex Group Ltd DATABASES 479 Appendix I 481 Appendix II 535 Appendix III 541 Index 553 vii For my family, My wife Claudia and my children, Megan, David and Rhodri
The list of books you might like
