The handbook of insurance-linked securities (2009)

About the Contributors. Acknowledgements. 1 Introduction ( Pauline Barrieu and Luca Albertini ). PART I NON-LIFE SECURITISATION. 2 Non-life Insurance Securitisation: Market Overview, Background and Evolution ( Jonathan Spry ). 2.1 Market overview. 2.2 Market dynamics. 2.3 The question of basis risk remains. 2.4 ILS and the credit crunch. 3 Cedants' Perspectives on Non-life Securitization. 3A Insurance-linked securities as part of advanced risk intermediation ( Insa Adena, Katharina Hartwig and Georg Rindermann ). 3B Reinsurance vs Securitisation ( Guillaume Gorge 3C Securitisation as a diversification from traditional retrocession ( Jean-Luc Besson ). 4 Choice of Triggers ( Dominik Hagedorn, Christian Heigl, Andreas M..uller and Gerold Seidler ). 4.1 General aspects. 4.2 Indemnity triggers. 4.3 Non-indemnity triggers. 4.4 Choosing the optimal trigger. 5 Basis Risk from the Cedant's Perspective ( David Ross and Jillian Williams ). 5.1 Introduction. 5.2 Investor vs sponsor risk. 5.3 Trigger types. 5.4 Catastrophe models. 5.5 Sources of basis risk. 5.6 Defining basis risk. 5.7 Quantifying basis risk. 5.8 Minimising basis risk. 5.9 Conclusion. Acknowledgements. References. 6 Rating Methodology ( Cameron Heath ). 6.1 Standard & Poor's ratings services' rating process. 6.2 Risk analysis. 6.3 Legal and swap documentation review process. 6.4 Impact on sponsor. 7 Risk Modelling and the Role and Benefits of Cat Indices ( Ben Brookes ). 7.1 Components of a cat model. 7.2 Insurance-linked securities. 7.3 Cat indices. 7.4 Summary. 8 Legal Issues ( Malcolm Wattman, Matthew Feig, James Langston, and James Frazier ). 8.1 The note offering - federal securities law implications. 8.2 The note offering - the offering circular. 8.3 Types of transactions. 8.4 Conclusion. 9 The Investor Perspective (Non-Life) ( Luca Albertini ). 9.1 The creation of a sustainable and liquid market. 9.2 Key transaction features from the investor perspective. 9.3 Market evolution: the investor perspective. 10 ILS Portfolio Monitoring Systems ( Tibor Winkler and John Stroughair ). 10.1 Introduction. 10.2 Miu - An ILS platform in a convergent space. 10.3 RMS library of cat bond characterisations. 10.4 Conclusion. 11 The Evolution and Future of Reinsurance Sidecars ( Douglas J. Lambert and Kenneth R. Pierce ). 11.1 A brief history of the brief history of sidecars. 11.2 Sidecar structures. 11.3 The appeal of sidecars. 11.4 Structuring considerations. 11.5 The outlook for sidecars. 11.6 Conclusion. 12 Case Study: A Cat Bond Transaction by SCOR (Atlas) ( Emmanuel Durousseau ). 12.1 Introduction: SCOR's recent history. 12.2 Atlas III and IV: Background. 12.3 Atlas: Main characteristics. 12.4 Basis Risk. 12.5 Total Return Swap. 12.6 Conclusion. Appendix A. A.1 Definition of events. A.2 Extension events. 13 Case Study: Swiss Re's New Natural Catastrophe Protection Program (Vega) ( Jay Green and Jean-Louis Monnier ). 13.1 A positive evolution of Swiss Re's ILS strategy. 13.2 Swiss Re accesses multi-event natural catastrophe coverage. 13.3 The first ILS to use a cash reserve account as credit enhancement. 13.4 Innovation leads to more efficient protection. PART II LIFE SECURITISATION. 14 General Features of Life Insurance-Linked Securitisation ( Norman Peard ). 14.1 Life insurer corporate and business structures, risks and products. 14.2 Actors and their roles. 14.3 Process. 15 Cedants' Perspectives on Life Securitisation. 15A A cedant's perspective on life securitisation ( Alison McKie ). 15B A cedant's perspective on life securitisation ( Chris Madsen ). 16 Rating Methodology ( Harish Gohil ). 16.1 Fitch's approach to the rating process. 16.2 Insurance risk analysis. 16.3 Zest: a VIF case study. References. 17 Life Securitisation: Risk Modelling ( Steven Schreiber ). 17.1 Modelling of a catastrophic mortality transaction. 17.2 Modelling of a VIF transaction. 18 Life Insurance Securitisation: Legal Issues ( Jennifer Donohue ). 18.1 Monetisation of future cash flows. 18.2 Legal aspects of life insurance securitisation - some key features. 18.3 Some examples of value-in-force securitisation/monetisation. 18.4 Outlook. 19 The Investor Perspective (Life) ( Luca Albertini ). 19.1 Life insurance-linked risks and investor appetite. 19.2 Key transaction features from the investor perspective. 19.3 Market evolution: the investor perspective. 20 Longevity Securitisation: Specific Challenges and Transactions ( Jennifer Donohue, Kirsty Maclean and Norman Peard ). 20.1 Mortality and longevity risk. 20.2 A market for longevity risk. 20.3 Key structural aspects of longevity risk securitisation. 20.4 Some features of longevity risk. 21 Longevity Risk Transfer: Indices and Capital Market Solutions ( Guy Coughlan ). 21.1 The nature of longevity risk. 21.2 The market for longevity risk transfer. 21.3 Importance of indices, tools and standards. 21.4 Capital market instruments for longevity risk transfer. 21.5 Customised vs standardised longevity hedges. 21.6 Case study: customised longevity hedge. 21.7 Implementing a standardised index-based longevity hedge. 21.8 Conclusions. References. 22 Case Study: A Cat Mortality Bond by AXA (OSIRIS) ( Sylvain Coriat ). 22.1 Catastrophic pandemic risk. 22.2 Considered risk transfer tools. 22.3 Detailed structure. 22.4 Risk analysis. 22.5 Investors' reaction. 22.6 Spread behaviour. 22.7 Next steps. Reference. 23 Case Study: Some Embedded Value and XXX Securitisations ( Michael Eakins and Nicola Dondi ). 23.1 Embedded value securitisation - Avondale S.A. 23.2 XXX securitisation. PART III TAX AND REGULATORY CONSIDERATIONS. 24 The UK Taxation Treatment of Insurance-Linked Securities ( Adam Blakemore and Oliver Iliffe ). 24.1 The Directive and the taxation of UK ISPVs. 24.2 Non-UK insurance special purpose vehicles. 24.3 Indirect taxes and withholding of income tax. 25 The US Federal Income Taxation Treatment of Insurance-Linked Securities ( David S. Miller and Shlomo Boehm ). 25.1 Avoiding US corporate income tax for the issuer. 25.2 Withholding tax and excise tax. 25.3 US federal income tax treatment of an investor in a catastrophe bond issuer: overview. 26 Regulatory Issues and Solvency Capital Requirements ( Mark Nicolaides, Simeon Rudin, Rick Watson and Katharina Hartwig ). 26.1 Regulatory issues relevant for ILS sponsors. 26.2 Solvency I. 26.3 Solvency II. Appendix A: Standard formula, solvency capital requirement (SCR). A.1 Calculation of the basic solvency capital requirement. A.2 Calculation of the non-life underwriting risk module. A.3 Calculation of the life underwriting risk module. A.4 Calculation of the market risk module. Index.