Hi,

Please find below your FREE copy of the brand new ILS Today Newsletter. This brand new service will provide thousands of insurance-linked securities professionals with the most timely news about the market. If you would like to be a guest editor simply contact ian@ilstoday.com.

In our opening issue, we focus on the resilience that ILS have shown to the recent credit crunch and what this could mean for the future of the ILS market.

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Ian Evans

ILS Today

Continued rapid growth expected for insurance-linked securities

Since its inception in 1996 the insurance-linked securities market has witnessed worldwide issuance of $38bn and has more than remained stable throughout the credit crunch. According to AM Best, the catastrophe bond market grew from $1.99bn to $4.69bn between 2005 and 2006, and Swiss Re predict that the wider ILS market will follow suit by growing to $1trln over the next decade.

Investors recently raced to buy a $260m catastrophe bond designed to protect East Japan Railway against earthquake damage. Rodrigo Araya of Moody's Investors Service says, "The market has grown at a scorching pace in the last three years. We will probably see about $8bn in new issuance this year."

At the end of August, catastrophe bonds returned 3.4 percent since May 31st according to data provided by Swiss Re, the world's largest reinsurer and bigest underwriter of cat bonds. The average corporate bond declined 0.3 percent and asset-backed debt fell by 3.3 percent during the same period according to data provided by Merrill Lynch and Co.

The Financial Times reported Jacques Aigrain, CEO of Swiss Re, the world's largest reinsurer and biggest underwriter of cat bonds as saying, "For the insurance-linked securities, what has been demonstrated is that there is absolutely no correlation between these type of risks and the financial market's other assets".

The introduction of Solvency II in 2012 will further encourage the market to grow. Solvency II is the most far-reaching change to the framework governing insurance companies in the European Union for over 20 years. Talking about Solvency II, Rick Watson who is managing Director of the European Securitisation Forum said, "The new legislation allows for insurance companies to use the transfer of risk onto the capital markets as a tool to reduce their regulatory capital requirements which was previously not permitted. This will encourage rapid growth in the sector as more risks are securitised".

Lloyd's of London discuss uncertainty in insurance-linked securities

Catastrophe risk modelling tools are used by risk managers, insurers and reinsurers to assess the potential losses caused by natural and man-made disasters. At present, all but a few insurers rely on a single catastrophe risk model to understand disaster risk; this can leave companies in the dark as to the sensitivities that surround the choices modellers take.

Such models have recently been called "black boxes" by some professionals because their users do not get to see the inner workings of the model and have only limited options to test the impact. Vinay Mistry is Manager of Exposure Management at Lloyds of London and discusses how "Open Source Risk Modelling" could benefit the ILS and cat bond market by producing a more effective way of modelling risk.

Mistry says, "Lloyd's believes the industry owes the catastrophe modelling firms a great debt. They have helped us to better quantify and manage risks" but continues to say "improvements could be made".

Lloyds believe that it is possible for existing models to incorporate the most recent and relevant scientific and engineering advances into their own risk models which would increase the speed at which such models develop. "In an ideal open-source CAT model, the user would have the opportunity to choose different individual modules from different sources".

He concludes, "The main benefit to the ILS community is an improved understanding of the risk that is being accepted onto the counterparty balance sheets". Vinay Mistry will be hosting a detailed presentation about "Open Source Risk Modelling" at the European ILS and Cat Bond Summit 2008 which takes place on 7-8 February.

Other interesting news articles

Allianz places 200 mln eur European windstorm catastrophe bond

Allianz SE said it has placed a catastrophe bond of 200 mln eur, which transfers the risks of windstorms in Austria, Belgium, France, Germanym Irelandm the Netherlands and the UK to investors...

Click here to read full story

ICAP CEO eyes insurance opportunities

The multi-trillion dollar insurance market is ripe for the development of widespread derivatives trading, ICAP Chief Executive Michael Spencer told Reuters on Tuesday.

The world's biggest inter-dealer broker set up a joint venutre in February with insurance broker Jardine Lloyd Thompson Group to originate struvture and act as broker on insurance-related securities, in anticipation of a growing convergence between the insurance and capital markets...

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KAMP RE cat bond to be triggered: S & P

A $190 million catastrophe bond issued by special purpose vehicle KAMP RE 2005 Ltd. on behalf of Swiss Reinsurance America Corp is apparently about to be triggered.

This is the first cat bond rated by New York-based Standard and Poor's Corp. that will result in a loss of investor's principal, according to S & P director Gary Martucci. Mr Martucci said the final amount of the loss, though, has not yet been determined...

Click here to read full story