The Handbook of Insurance-Linked Securities
by Editor: Pauline Barrieu (London School of Economics); Editor: Luca Albertini (Leadenhall Capital Partners)Format: eBook
Pub. Date: 2010-01-01
Publisher(s): Wiley
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Summary
This book provides a much needed reference for finance practitioners on the rapidly growing Insurance Linked Securities markets. It will provide readers with the state of the art in Insurance-Linked Securitization, introducing the different parties involved in the transactions and their roles, the motivation for the transaction sponsors, the potential inherent pitfalls, the latest developments and transaction structures but also the key challenges faced by the market at each stage. The book will also focus on more general issues faced by the industry, including accounting and tax issues, regulatory issues and solvency capital requirements - all tackled from international perspectives.The book will be organized into two parts making a distinction between non-life and life securitization in order to accommodate the specificities of each sector. Each chapter covers a specific topic or sector of the market. After a general overview over the ILS market, the Insurance-Linked Securitization process is studied in detail.Contributions will be from leading practitioners in the field, and will feature case studies and worked examples to illustrate more complicated transactions and techniques.
Table of Contents
| About the Contributors | |
| Acknowledgements | |
| Introduction | |
| Non-Life Securitisation | |
| Non-life Insurance Securitisation: Market Overview, Background and Evolution | |
| Cedants Perspectives on Non-life Securitization | |
| Insurance-linked securities as part of advanced risk intermediation | |
| Reinsurance vs Securitisation | |
| Securitisation as a diversification from traditional retrocession | |
| Choice of Triggers | |
| General aspects | |
| Indemnity triggers | |
| Non-indemnity triggers | |
| Choosing the optimal trigger | |
| Basis Risk from the Cedants Perspective | |
| Introduction | |
| Investor vs sponsor risk | |
| Trigger types | |
| Catastrophe models | |
| Sources of basis risk | |
| Defining basis risk | |
| Quantifying basis risk | |
| Minimising basis risk | |
| Conclusion | |
| Acknowledgements | |
| References | |
| Rating Methodology | |
| Standard & Poors ratings services rating process | |
| Risk analysis | |
| Legal and swap documentation review process | |
| Impact on sponsor | |
| References | |
| Risk Modelling and the Role and Benefits of Cat Indices | |
| Components of a cat model | |
| Insurance-linked securities | |
| Cat indices | |
| Summary | |
| Legal Issues | |
| The note offering federal securities law implications | |
| The note offering the offering circular | |
| Types of transactions | |
| Conclusion | |
| The Investor Perspective (Non-Life) | |
| The creation of a sustainable and liquid market | |
| Key transaction features from the investor perspective | |
| Market evolution: the investor perspective | |
| ILS Portfolio Monitoring Systems | |
| Introduction | |
| Miu An ILS platform in a convergent space | |
| RMS library of cat bond characterisations | |
| Conclusion | |
| The Evolution and Future of Reinsurance Sidecars | |
| A brief history of the brief history of sidecars | |
| Sidecar structures | |
| The appeal of sidecars | |
| Structuring considerations | |
| The outlook for sidecars | |
| Conclusion | |
| Case Study: A Cat Bond Transaction by SCOR (Atlas) | |
| Introduction: SCORs recent history | |
| Atlas III and IV: Background | |
| Atlas: Main characteristics | |
| Basis Risk | |
| Total Return Swap | |
| Conclusion | |
| Definition of events | |
| Extension events | |
| Case Study: Swiss Res New Natural Catastrophe Protection Program (Vega) | |
| A positive evolution of Swiss Res ILS strategy | |
| Swiss Re accesses multi-event natural catastrophe coverage | |
| The first ILS to use a cash reserve account as credit enhancement | |
| Innovation leads to more efficient protection | |
| Life Securitisation | |
| General Features of Life Insurance-Linked Securitisation | |
| Life insurer corporate and business structures, risks and products | |
| Actors and their roles | |
| Process | |
| Cedants Perspectives on Life Securitisation | |
| A cedants perspective on life securitisation | |
| Why securitise? | |
| Life ILS can be complex | |
| Outlook for life ILS | |
| A cedants perspective on life securitisation | |
| Key considerations | |
| Examples of securitisation opportunities | |
| Differences between securitisation and reinsurance | |
| Rating Methodology | |
| Fitchs approach to the rating process | |
| Insurance risk analysis | |
| Zest: a VIF case study | |
| References | |
| Life Securitisation: Risk Modelling | |
| Modelling of a catastrophic mortality transaction | |
| Modelling of a VIF transaction | |
| Life Insurance Securitisation: Legal Issues | |
| Monetisation of future cash flows | |
| Legal aspects of life insurance securitisation some key features | |
| Some examples of value-in-force securitisation/monetisation | |
| Outlook | |
| The Investor Perspective (Life) | |
| Life insurance-linked risks and investor appetite | |
| Key transaction features from the investor perspective | |
| Market evolution: the investor perspective | |
| Longevity Securitisation: Specific Challenges and Transactions | |
| Mortality and longevity risk | |
| A market for longevity risk | |
| Key structural aspects of longevity risk securitisation | |
| Some features of longevity risk | |
| Longevity Risk Transfer: Indices and Capital Market Solutions | |
| The nature of longevity risk | |
| The market for longevity risk transfer | |
| Importance of indices, tools and standards | |
| Capital market instruments for longevity risk transfer | |
| Customised vs standardised longevity hedges | |
| Case study: customised longevity hedge | |
| Implementing a standardised index-based longevity hedge | |
| Conclusions | |
| References | |
| Case Study: A Cat Mortality Bond by AXA (OSIRIS) | |
| Catastrophic pandemic risk | |
| Considered risk transfer tools | |
| Detailed structure | |
| Risk analysis | |
| Investors reaction | |
| Spread behaviour | |
| Next steps | |
| Reference | |
| Case Study: Some Embedded Value and XXX Securitisations | |
| Embedded value securitisation Avondale S.A | |
| XXX securitisation | |
| Tax And Regulatory Considerations | |
| The UK Taxation Treatment of Insurance-Linked Securities | |
| The Directive and the taxation of UK ISPVs | |
| Non-UK insurance special purpose vehicles | |
| Indirect taxes and withholding of income tax | |
| Further Reading | |
| The US Federal Income Taxation Treatment of Insurance-Linked Securities | |
| Avoiding US corporate income tax for the issuer | |
| Withholding tax and excise tax | |
| US federal income tax treatment of an investor in a catastrophe bond issuer: overview | |
| Reference | |
| Regulatory Issues and Solvency Capital Requirements | |
| Regulatory issues relevant for ILS sponsors | |
| Solvency I | |
| Solvency II | |
| Standard formula, solvency capital requirement (SCR) | |
| Index | |
| Table of Contents provided by Publisher. All Rights Reserved. |
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