{"product_id":"the-handbook-of-insurance-linked-securities-isbn-9780470743836","title":"The Handbook of Insurance-Linked Securities","description":"\"Luca Albertini and Pauline Barrieu are to be congratulated on this volume. Written in a period where structured projects in finance are having a difficult time, it is worthwhile to return to the cradle of securitisation: insurance. Spread out over three parts (life, non- life, and tax and regulatory issues) the 26 chapters, written mainly by practitioners, give an excellent overview of this challenging field of modern insurance. Methodology and examples nicely go hand in hand. The overall slant being towards actual analyses of concrete products. No doubt this book will become a milestone going forward for actuarial students, researchers, regulators and practitioners alike.\"\u003cbr\u003e—\u003cb\u003ePaul Embrechts, Professor of Mathematics and Director of RiskLab, ETH Zurich\u003c\/b\u003e \u003cp\u003eThe convergence of insurance with the capital markets has opened up an alternative channel for insurers to transfer risk, raise capital and optimize their regulatory reserves as well as offering institutions a source of relatively liquid investment with limited correlation with other exposures. One of the financial instruments allowing for the cession of insurance-related risks to the capital markets is Insurance-Linked Securities (ILS).\u003c\/p\u003e \u003cp\u003eThis book provides hands-on information essential for market participants, drawing on the insights and expertise of an impressive team of international market players, representing the various aspects and perspectives of this growing sector.\u003c\/p\u003e \u003cp\u003eThe book presents the state of the art in Insurance-Linked Securitization, by exploring the various roles for the different parties involved in the transactions, the motivation for the transaction sponsors, the potential inherent pitfalls, the latest developments and transaction structures and the key challenges faced by the market.\u003c\/p\u003e \u003cp\u003eThe book is organized into parts, each covering a specific topic or sector of the market. After a general overview of the ILS market, the Insurance-Linked Securitization process is studied in detail. A distinction is made between non-life and life securitization, due to the specificities of each sector. The process and all the actors involved are identified and considered in a comprehensive and systematic way. The concepts are first looked at in a general way, before the analysis of relevant case studies where the ILS technology is applied.\u003c\/p\u003e \u003cp\u003eParticular focus is given to:\u003c\/p\u003e \u003cul\u003e \u003cli\u003ethe key stages in both non-life and life securitizations, including the general features of the transactions, the cedant's perspectives, the legal issues, the rating methodologies, the choice of an appropriate trigger and the risk modeling,\u003c\/li\u003e \u003cli\u003ethe particular challenges related to longevity securitization,\u003c\/li\u003e \u003cli\u003ethe investor's perspective and the question of the management of a portfolio of ILS, the general issues related to insurance-linked securitization, such as accounting and tax issues, regulatory issues and solvency capital requirements.\u003c\/li\u003e \u003c\/ul\u003e \u003cp\u003eThe book is accompanied by a website \u003cb\u003e\u003ca href=\"http:\/\/www.wiley.com\/go\/albertini_barrieu_ILS\"\u003ewww.wiley.com\/go\/albertini_barrieu_ILS\u003c\/a\u003e\u003c\/b\u003e which will feature updates and additions to the various contributions to follow market developments.\u003c\/p\u003e \u003cp\u003eAbout the Contributors xv\u003c\/p\u003e \u003cp\u003eAcknowledgements xxv\u003c\/p\u003e \u003cp\u003e\u003cb\u003e1 Introduction 1\u003cbr\u003e \u003c\/b\u003e\u003ci\u003ePauline Barrieu and Luca Albertini\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart I Non-life Securitisation 7\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e2 Non-life Insurance Securitisation: Market Overview, Background and Evolution 9\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eJonathan Spry\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e2.1 Market overview 9\u003c\/p\u003e \u003cp\u003e2.2 Market dynamics 14\u003c\/p\u003e \u003cp\u003e2.3 The question of basis risk remains 16\u003c\/p\u003e \u003cp\u003e2.4 ILS and the credit crunch 18\u003c\/p\u003e \u003cp\u003e\u003cb\u003e3 Cedants’ Perspectives on Non-life Securitization 19\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e3A Insurance-linked securities as part of advanced risk intermediation 21\u003cbr\u003e \u003ci\u003eInsa Adena, Katharina Hartwig and Georg Rindermann\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e3A.1 Motivation for Allianz to take part in ILS activities 21\u003c\/p\u003e \u003cp\u003e3A.2 Objectives of insurance companies 23\u003c\/p\u003e \u003cp\u003e3A.3 Case study: Blue Fin Ltd 24\u003c\/p\u003e \u003cp\u003eReferences 28\u003c\/p\u003e \u003cp\u003e3B Reinsurance vs Securitisation 29\u003cbr\u003e \u003ci\u003eGuillaume Gorge\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e3B.1 Keeping risk vs transferring it 29\u003c\/p\u003e \u003cp\u003e3B.2 Reinsurance vs securitisation 30\u003c\/p\u003e \u003cp\u003e3B.3 Application to main P\u0026amp;C risks 31\u003c\/p\u003e \u003cp\u003e3B.4 Case studies: Aura re and Sparc 32\u003c\/p\u003e \u003cp\u003e3B.5 Limits and success factors to securitisation 33\u003c\/p\u003e \u003cp\u003eReferences 34\u003c\/p\u003e \u003cp\u003e3C Securitisation as a diversification from traditional retrocession 35\u003cbr\u003e \u003ci\u003eJean-Luc Besson\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e4 Choice of Triggers 37\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eDominik Hagedorn, Christian Heigl, Andreas Müller and Gerold Seidler\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e4.1 General aspects 37\u003c\/p\u003e \u003cp\u003e4.2 Indemnity triggers 38\u003c\/p\u003e \u003cp\u003e4.2.1 Scope of coverage 39\u003c\/p\u003e \u003cp\u003e4.2.2 Payout timing 39\u003c\/p\u003e \u003cp\u003e4.2.3 Loss verification 40\u003c\/p\u003e \u003cp\u003e4.2.4 Transparency 40\u003c\/p\u003e \u003cp\u003e4.3 Non-indemnity triggers 41\u003c\/p\u003e \u003cp\u003e4.3.1 Parametric triggers (pure and index) 41\u003c\/p\u003e \u003cp\u003e4.3.2 Industry loss triggers 43\u003c\/p\u003e \u003cp\u003e4.3.3 Modelled loss triggers 45\u003c\/p\u003e \u003cp\u003e4.4 Choosing the optimal trigger 45\u003c\/p\u003e \u003cp\u003e4.4.1 Comparison of trigger types 46\u003c\/p\u003e \u003cp\u003e4.4.2 Choice of trigger and alternative solutions 47\u003c\/p\u003e \u003cp\u003e\u003cb\u003e5 Basis Risk from the Cedant’s Perspective 49\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eDavid Ross and Jillian Williams\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e5.1 Introduction 49\u003c\/p\u003e \u003cp\u003e5.2 Investor vs sponsor risk 50\u003c\/p\u003e \u003cp\u003e5.3 Trigger types 50\u003c\/p\u003e \u003cp\u003e5.4 Catastrophe models 52\u003c\/p\u003e \u003cp\u003e5.4.1 Key components of catastrophe models 52\u003c\/p\u003e \u003cp\u003e5.4.2 Uncertainty 54\u003c\/p\u003e \u003cp\u003e5.5 Sources of basis risk 55\u003c\/p\u003e \u003cp\u003e5.5.1 Source 1: Catastrophe model error\/shortcomings 55\u003c\/p\u003e \u003cp\u003e5.5.2 Source 2: Discrepancy between the modelled index loss and the modelled company loss 56\u003c\/p\u003e \u003cp\u003e5.5.3 Source 3: Dynamic basis risk 56\u003c\/p\u003e \u003cp\u003e5.6 Defining basis risk 56\u003c\/p\u003e \u003cp\u003e5.7 Quantifying basis risk 58\u003c\/p\u003e \u003cp\u003e5.7.1 Measures for pro rata hedges 58\u003c\/p\u003e \u003cp\u003e5.7.2 Measures for digital hedges 59\u003c\/p\u003e \u003cp\u003e5.7.3 Measuring positive basis risk 59\u003c\/p\u003e \u003cp\u003e5.8 Minimising basis risk 60\u003c\/p\u003e \u003cp\u003e5.8.1 Over-hedging 60\u003c\/p\u003e \u003cp\u003e5.8.2 Choice of index 62\u003c\/p\u003e \u003cp\u003e5.8.3 Reset clauses 62\u003c\/p\u003e \u003cp\u003e5.8.4 Cat model input 63\u003c\/p\u003e \u003cp\u003e5.9 Conclusion 63\u003c\/p\u003e \u003cp\u003eAcknowledgements 63\u003c\/p\u003e \u003cp\u003eReferences 64\u003c\/p\u003e \u003cp\u003e\u003cb\u003e6 Rating Methodology 65\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eCameron Heath\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e6.1 Standard \u0026amp; Poor’s ratings services’ rating process 65\u003c\/p\u003e \u003cp\u003e6.1.1 Initial interaction 65\u003c\/p\u003e \u003cp\u003e6.1.2 Risk analysis 65\u003c\/p\u003e \u003cp\u003e6.1.3 Documentation review 67\u003c\/p\u003e \u003cp\u003e6.1.4 Transaction closing 67\u003c\/p\u003e \u003cp\u003e6.1.5 Surveillance 67\u003c\/p\u003e \u003cp\u003e6.2 Risk analysis 68\u003c\/p\u003e \u003cp\u003e6.2.1 Trigger options 68\u003c\/p\u003e \u003cp\u003e6.2.2 Indemnity vs non-indemnity triggers 68\u003c\/p\u003e \u003cp\u003e6.2.3 Risk factors 70\u003c\/p\u003e \u003cp\u003e6.2.4 Adjusted probability of default 72\u003c\/p\u003e \u003cp\u003e6.2.5 Application of methodology 73\u003c\/p\u003e \u003cp\u003e6.2.6 Default table 74\u003c\/p\u003e \u003cp\u003e6.2.7 Multi-event criteria 74\u003c\/p\u003e \u003cp\u003e6.3 Legal and swap documentation review process 75\u003c\/p\u003e \u003cp\u003e6.3.1 Insurance focus points 75\u003c\/p\u003e \u003cp\u003e6.3.2 Legal and structural focus points 75\u003c\/p\u003e \u003cp\u003e6.4 Impact on sponsor 75\u003c\/p\u003e \u003cp\u003e6.4.1 Capital model treatment of ILS 75\u003c\/p\u003e \u003cp\u003e6.4.2 Summary of basis risk analysis 76\u003c\/p\u003e \u003cp\u003e6.4.3 Sources of basis risk 77\u003c\/p\u003e \u003cp\u003e6.4.4 Link to ILS revised probability of attachment 82\u003c\/p\u003e \u003cp\u003eReferences 82\u003c\/p\u003e \u003cp\u003e\u003cb\u003e7 Risk Modelling and the Role and Benefits of Cat Indices 83\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eBen Brookes\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e7.1 Components of a cat model 84\u003c\/p\u003e \u003cp\u003e7.2 Insurance-linked securities 84\u003c\/p\u003e \u003cp\u003e7.2.1 General overview 84\u003c\/p\u003e \u003cp\u003e7.2.2 Insurance-linked security triggers 85\u003c\/p\u003e \u003cp\u003e7.2.3 Basis risk 90\u003c\/p\u003e \u003cp\u003e7.3 Cat indices 93\u003c\/p\u003e \u003cp\u003e7.3.1 Property Claims Service (PCS) 93\u003c\/p\u003e \u003cp\u003e7.3.2 Re-Ex – NYMEX 93\u003c\/p\u003e \u003cp\u003e7.3.3 Insurance Futures Exchange Service (IFEX) 94\u003c\/p\u003e \u003cp\u003e7.3.4 Carvill Hurricane Index (CHI) – Chicago Mercantile Exchange (CME) 94\u003c\/p\u003e \u003cp\u003e7.3.5 Paradex 95\u003c\/p\u003e \u003cp\u003e7.4 Summary 99\u003c\/p\u003e \u003cp\u003e\u003cb\u003e8 Legal Issues 101\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eMalcolm Wattman, Matthew Feig, James Langston, and James Frazier\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e8.1 The note offering – federal securities law implications 101\u003c\/p\u003e \u003cp\u003e8.1.1 The distribution of the notes 101\u003c\/p\u003e \u003cp\u003e8.1.2 Application of the anti-fraud provisions of the federal securities laws 102\u003c\/p\u003e \u003cp\u003e8.1.3 Securities offering reform 103\u003c\/p\u003e \u003cp\u003e8.1.4 Provision of information 103\u003c\/p\u003e \u003cp\u003e8.1.5 The Investment Company Act of 1940 104\u003c\/p\u003e \u003cp\u003e8.2 The note offering – the offering circular 104\u003c\/p\u003e \u003cp\u003e8.2.1 Important terms 104\u003c\/p\u003e \u003cp\u003e8.2.2 ERISA considerations 106\u003c\/p\u003e \u003cp\u003e8.2.3 Other considerations regarding the proceeds and payment of interest 109\u003c\/p\u003e \u003cp\u003e8.2.4 The risk analysis 110\u003c\/p\u003e \u003cp\u003e8.2.5 Opinions 110\u003c\/p\u003e \u003cp\u003e8.3 Types of transactions 110\u003c\/p\u003e \u003cp\u003e8.3.1 Parametric, index and modeled loss transactions 111\u003c\/p\u003e \u003cp\u003e8.3.2 Indemnity transactions 111\u003c\/p\u003e \u003cp\u003e8.4 Conclusion 115\u003c\/p\u003e \u003cp\u003e\u003cb\u003e9 The Investor Perspective (Non-Life) 117\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eLuca Albertini\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e9.1 The creation of a sustainable and liquid market 117\u003c\/p\u003e \u003cp\u003e9.1.1 Creation of common terminology 118\u003c\/p\u003e \u003cp\u003e9.1.2 Risk analysis 119\u003c\/p\u003e \u003cp\u003e9.1.3 Correlation with other investments in the portfolio 119\u003c\/p\u003e \u003cp\u003e9.1.4 Relative value 121\u003c\/p\u003e \u003cp\u003e9.1.5 Valuation and liquidity 121\u003c\/p\u003e \u003cp\u003e9.2 Key transaction features from the investor perspective 122\u003c\/p\u003e \u003cp\u003e9.2.1 Assessment of the underlying risks being securitised 122\u003c\/p\u003e \u003cp\u003e9.2.2 Risk assessment of the instrument 124\u003c\/p\u003e \u003cp\u003e9.2.3 Pricing and risk-return profile 125\u003c\/p\u003e \u003cp\u003e9.3 Market evolution: the investor perspective 127\u003c\/p\u003e \u003cp\u003e9.3.1 Collateral arrangements 127\u003c\/p\u003e \u003cp\u003e9.3.2 Data transparency 128\u003c\/p\u003e \u003cp\u003e9.3.3 Exposure monitoring 129\u003c\/p\u003e \u003cp\u003e9.3.4 Modelling rigour 129\u003c\/p\u003e \u003cp\u003e\u003cb\u003e10 ILS Portfolio Monitoring Systems 131\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eTibor Winkler and John Stroughair\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e10.1 Introduction 131\u003c\/p\u003e \u003cp\u003e10.1.1 Completing the circle 131\u003c\/p\u003e \u003cp\u003e10.1.2 ‘Square peg in a round hole?’ 132\u003c\/p\u003e \u003cp\u003e10.2 Miu – An ILS platform in a convergent space 133\u003c\/p\u003e \u003cp\u003e10.2.1 Overview 133\u003c\/p\u003e \u003cp\u003e10.2.2 Nuts and bolts – how the platform works 133\u003c\/p\u003e \u003cp\u003e10.2.3 Step by step – entering a contract 134\u003c\/p\u003e \u003cp\u003e10.2.4 Portfolio analysis 134\u003c\/p\u003e \u003cp\u003e10.3 RMS library of cat bond characterisations 137\u003c\/p\u003e \u003cp\u003e10.3.1 Motivation and objectives 137\u003c\/p\u003e \u003cp\u003e10.3.2 How is it done? A bird’s eye view 137\u003c\/p\u003e \u003cp\u003e10.3.3 Apples to apples – a leap for the market 138\u003c\/p\u003e \u003cp\u003e10.4 Conclusion 138\u003c\/p\u003e \u003cp\u003e\u003cb\u003e11 The Evolution and Future of Reinsurance Sidecars 141\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eDouglas J. Lambert and Kenneth R. Pierce\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e11.1 A brief history of the brief history of sidecars 142\u003c\/p\u003e \u003cp\u003e11.2 Sidecar structures 143\u003c\/p\u003e \u003cp\u003e11.2.1 Basic structure 143\u003c\/p\u003e \u003cp\u003e11.2.2 Market-facing sidecar 144\u003c\/p\u003e \u003cp\u003e11.2.3 Non-market-facing sidecar 145\u003c\/p\u003e \u003cp\u003e11.2.4 Capitalising sidecars 146\u003c\/p\u003e \u003cp\u003e11.2.5 How sidecars and catastrophe bonds are different 147\u003c\/p\u003e \u003cp\u003e11.3 The appeal of sidecars 148\u003c\/p\u003e \u003cp\u003e11.3.1 From a cedant\/sponsor perspective 148\u003c\/p\u003e \u003cp\u003e11.3.2 From an investor perspective 149\u003c\/p\u003e \u003cp\u003e11.4 Structuring considerations 149\u003c\/p\u003e \u003cp\u003e11.5 The outlook for sidecars 150\u003c\/p\u003e \u003cp\u003e11.6 Conclusion 151\u003c\/p\u003e \u003cp\u003e\u003cb\u003e12 Case Study: A Cat Bond Transaction by SCOR (Atlas) 153\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eEmmanuel Durousseau\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e12.1 Introduction: SCOR’s recent history 153\u003c\/p\u003e \u003cp\u003e12.2 Atlas III and IV: Background 153\u003c\/p\u003e \u003cp\u003e12.3 Atlas: Main characteristics 155\u003c\/p\u003e \u003cp\u003e12.4 Basis Risk 158\u003c\/p\u003e \u003cp\u003e12.4.1 Reset 158\u003c\/p\u003e \u003cp\u003e12.4.2 Gross up 158\u003c\/p\u003e \u003cp\u003e12.4.3 Overlap 158\u003c\/p\u003e \u003cp\u003e12.4.4 Synthetic covers 159\u003c\/p\u003e \u003cp\u003e12.5 Total Return Swap 160\u003c\/p\u003e \u003cp\u003e12.6 Conclusion 160\u003c\/p\u003e \u003cp\u003eAppendix A 161\u003c\/p\u003e \u003cp\u003eA. 1 Definition of events 161\u003c\/p\u003e \u003cp\u003eA. 2 Extension events 162\u003c\/p\u003e \u003cp\u003e\u003cb\u003e13 Case Study: Swiss Re’s New Natural Catastrophe Protection Program (Vega) 163\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eJay Green and Jean-Louis Monnier\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e13.1 A positive evolution of Swiss Re’s ILS strategy 163\u003c\/p\u003e \u003cp\u003e13.2 Swiss Re accesses multi-event natural catastrophe coverage 164\u003c\/p\u003e \u003cp\u003e13.3 The first ILS to use a cash reserve account as credit enhancement 164\u003c\/p\u003e \u003cp\u003e13.4 Innovation leads to more efficient protection 165\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart II Life Securitisation 167\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e14 General Features of Life Insurance-Linked Securitisation 169\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eNorman Peard\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e14.1 Life insurer corporate and business structures, risks and products 170\u003c\/p\u003e \u003cp\u003e14.1.1 Mutual life offices 170\u003c\/p\u003e \u003cp\u003e14.1.2 Proprietary life offices 171\u003c\/p\u003e \u003cp\u003e14.1.3 Other forms of life office 173\u003c\/p\u003e \u003cp\u003e14.1.4 Principal risks associated with life insurance business 173\u003c\/p\u003e \u003cp\u003e14.1.5 Principal product types and associated risks 176\u003c\/p\u003e \u003cp\u003e14.2 Actors and their roles 177\u003c\/p\u003e \u003cp\u003e14.2.1 Sponsor 177\u003c\/p\u003e \u003cp\u003e14.2.2 Investors 179\u003c\/p\u003e \u003cp\u003e14.2.3 Regulators 179\u003c\/p\u003e \u003cp\u003e14.2.4 External professional advisers 179\u003c\/p\u003e \u003cp\u003e14.2.5 Ratings agencies 181\u003c\/p\u003e \u003cp\u003e14.2.6 Monoline insurers 181\u003c\/p\u003e \u003cp\u003e14.2.7 Liquidity providers 181\u003c\/p\u003e \u003cp\u003e14.2.8 Swap providers 182\u003c\/p\u003e \u003cp\u003e14.2.9 Others 182\u003c\/p\u003e \u003cp\u003e14.3 Process 182\u003c\/p\u003e \u003cp\u003e\u003cb\u003e15 Cedants’ Perspectives on Life Securitisation 189\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e15A A cedant’s perspective on life securitisation 191\u003cbr\u003e \u003ci\u003eAlison McKie\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e15A.1 Why securitise? 191\u003c\/p\u003e \u003cp\u003e15A.2 Life ILS can be complex 194\u003c\/p\u003e \u003cp\u003e15A.3 Outlook for life ILS 198\u003c\/p\u003e \u003cp\u003e15B A cedant’s perspective on life securitisation 199\u003cbr\u003e \u003ci\u003eChris Madsen\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e15B.1 Key considerations 199\u003c\/p\u003e \u003cp\u003e15B.2 Examples of securitisation opportunities 202\u003c\/p\u003e \u003cp\u003e15B.3 Differences between securitisation and reinsurance 205\u003c\/p\u003e \u003cp\u003e\u003cb\u003e16 Rating Methodology 207\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eHarish Gohil\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e16.1 Fitch’s approach to the rating process 207\u003c\/p\u003e \u003cp\u003e16.2 Insurance risk analysis 208\u003c\/p\u003e \u003cp\u003e16.2.1 Risk modelling 208\u003c\/p\u003e \u003cp\u003e16.2.2 Ratings benchmarks 209\u003c\/p\u003e \u003cp\u003e16.2.3 Analysis of sponsor and other counterparties 210\u003c\/p\u003e \u003cp\u003e16.2.4 Surveillance 210\u003c\/p\u003e \u003cp\u003e16.3 Zest: a VIF case study 211\u003c\/p\u003e \u003cp\u003eReferences 212\u003c\/p\u003e \u003cp\u003e\u003cb\u003e17 Life Securitisation: Risk Modelling 213\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eSteven Schreiber\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e17.1 Modelling of a catastrophic mortality transaction 213\u003c\/p\u003e \u003cp\u003e17.2 Modelling of a VIF transaction 216\u003c\/p\u003e \u003cp\u003e\u003cb\u003e18 Life Insurance Securitisation: Legal Issues 219\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eJennifer Donohue\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e18.1 Monetisation of future cash flows 219\u003c\/p\u003e \u003cp\u003e18.1.1 Some background on monetisation 219\u003c\/p\u003e \u003cp\u003e18.1.2 The market drivers of monetisation 220\u003c\/p\u003e \u003cp\u003e18.1.3 Monetisation in the current climate 221\u003c\/p\u003e \u003cp\u003e18.1.4 Some transaction structures 221\u003c\/p\u003e \u003cp\u003e18.2 Legal aspects of life insurance securitisation – some key features 222\u003c\/p\u003e \u003cp\u003e18.2.1 Closed book\/open book 222\u003c\/p\u003e \u003cp\u003e18.2.2 Unit-linked policies – not ‘with profits’ policies 222\u003c\/p\u003e \u003cp\u003e18.2.3 Risk transfer versus no transfer 222\u003c\/p\u003e \u003cp\u003e18.2.4 Warranties 222\u003c\/p\u003e \u003cp\u003e18.2.5 Monoline wrap (payment obligation) 223\u003c\/p\u003e \u003cp\u003e18.2.6 Recharacterisation risk 223\u003c\/p\u003e \u003cp\u003e18.3 Some examples of value-in-force securitisation\/monetisation 225\u003c\/p\u003e \u003cp\u003e18.3.1 A classical VIF structure: Gracechurch 225\u003c\/p\u003e \u003cp\u003e18.3.2 A private but reported transaction: Zest 226\u003c\/p\u003e \u003cp\u003e18.4 Outlook 227\u003c\/p\u003e \u003cp\u003e\u003cb\u003e19 The Investor Perspective (Life) 229\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eLuca Albertini\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e19.1 Life insurance-linked risks and investor appetite 229\u003c\/p\u003e \u003cp\u003e19.1.1 The role of the monolines 229\u003c\/p\u003e \u003cp\u003e19.1.2 Understanding the risk 230\u003c\/p\u003e \u003cp\u003e19.1.3 Correlation with other investments 234\u003c\/p\u003e \u003cp\u003e19.1.4 Relative value 236\u003c\/p\u003e \u003cp\u003e19.1.5 Valuation and liquidity 237\u003c\/p\u003e \u003cp\u003e19.2 Key transaction features from the investor perspective 237\u003c\/p\u003e \u003cp\u003e19.2.1 Risk assessment of the instrument 237\u003c\/p\u003e \u003cp\u003e19.2.2 Pricing and risk-return profile 240\u003c\/p\u003e \u003cp\u003e19.3 Market evolution: the investor perspective 242\u003c\/p\u003e \u003cp\u003e\u003cb\u003e20 Longevity Securitisation: Specific Challenges and Transactions 245\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eJennifer Donohue, Kirsty Maclean and Norman Peard\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e20.1 Mortality and longevity risk 245\u003c\/p\u003e \u003cp\u003e20.2 A market for longevity risk 246\u003c\/p\u003e \u003cp\u003e20.2.1 Potential sources of longevity risk for securitisation 246\u003c\/p\u003e \u003cp\u003e20.2.2 Demand for longevity risk 247\u003c\/p\u003e \u003cp\u003e20.3 Key structural aspects of longevity risk securitisation 248\u003c\/p\u003e \u003cp\u003e20.3.1 Isolating longevity risk 248\u003c\/p\u003e \u003cp\u003e20.3.2 Analysis of longevity risks 249\u003c\/p\u003e \u003cp\u003e20.3.3 Longevity risk – legal explanation 250\u003c\/p\u003e \u003cp\u003e20.3.4 Examples and legal aspects of transaction structures 252\u003c\/p\u003e \u003cp\u003e20.4 Some features of longevity risk 255\u003c\/p\u003e \u003cp\u003e20.4.1 Model risk 255\u003c\/p\u003e \u003cp\u003e20.4.2 Ratings 258\u003c\/p\u003e \u003cp\u003e20.4.3 Pricing 258\u003c\/p\u003e \u003cp\u003e\u003cb\u003e21 Longevity Risk Transfer: Indices and Capital Market Solutions 261\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eGuy Coughlan\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e21.1 The nature of longevity risk 262\u003c\/p\u003e \u003cp\u003e21.2 The market for longevity risk transfer 263\u003c\/p\u003e \u003cp\u003e21.2.1 Hedgers 263\u003c\/p\u003e \u003cp\u003e21.2.2 Investors 265\u003c\/p\u003e \u003cp\u003e21.2.3 Intermediaries 265\u003c\/p\u003e \u003cp\u003e21.3 Importance of indices, tools and standards 266\u003c\/p\u003e \u003cp\u003e21.3.1 Longevity indices 266\u003c\/p\u003e \u003cp\u003e21.3.2 Trading and liquidity 268\u003c\/p\u003e \u003cp\u003e21.4 Capital market instruments for longevity risk transfer 268\u003c\/p\u003e \u003cp\u003e21.4.1 Longevity bond 268\u003c\/p\u003e \u003cp\u003e21.4.2 Survivor swap 269\u003c\/p\u003e \u003cp\u003e21.4.3 q-forward 269\u003c\/p\u003e \u003cp\u003e21.4.4 Survivor forward 271\u003c\/p\u003e \u003cp\u003e21.4.5 Instruments and liquidity 272\u003c\/p\u003e \u003cp\u003e21.5 Customised vs standardised longevity hedges 273\u003c\/p\u003e \u003cp\u003e21.5.1 Customised longevity hedge 273\u003c\/p\u003e \u003cp\u003e21.5.2 Standardised index-based longevity hedge 273\u003c\/p\u003e \u003cp\u003e21.5.3 Advantages and disadvantages 274\u003c\/p\u003e \u003cp\u003e21.6 Case study: customised longevity hedge 274\u003c\/p\u003e \u003cp\u003e21.7 Implementing a standardised index-based longevity hedge 275\u003c\/p\u003e \u003cp\u003e21.7.1 Liability sensitivity and hedge calibration 276\u003c\/p\u003e \u003cp\u003e21.7.2 Hedge effectiveness analysis 278\u003c\/p\u003e \u003cp\u003e21.8 Conclusions 280\u003c\/p\u003e \u003cp\u003eReferences 280\u003c\/p\u003e \u003cp\u003e\u003cb\u003e22 Case Study: A Cat Mortality Bond by AXA (OSIRIS) 283\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eSylvain Coriat\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e22.1 Catastrophic pandemic risk 283\u003c\/p\u003e \u003cp\u003e22.2 Considered risk transfer tools 284\u003c\/p\u003e \u003cp\u003e22.3 Detailed structure 285\u003c\/p\u003e \u003cp\u003e22.4 Risk analysis 287\u003c\/p\u003e \u003cp\u003e22.4.1 Modelling approach 287\u003c\/p\u003e \u003cp\u003e22.4.2 Index construction 287\u003c\/p\u003e \u003cp\u003e22.5 Investors’ reaction 288\u003c\/p\u003e \u003cp\u003e22.6 Spread behaviour 288\u003c\/p\u003e \u003cp\u003e22.7 Next steps 288\u003c\/p\u003e \u003cp\u003eReference 291\u003c\/p\u003e \u003cp\u003e\u003cb\u003e23 Case Study: Some Embedded Value and XXX Securitisations 293\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eMichael Eakins and Nicola Dondi\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e23.1 Embedded value securitisation – Avondale S.A. 295\u003c\/p\u003e \u003cp\u003e23.2 XXX securitisation 299\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart III Tax and Regulatory Considerations 305\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e24 The UK Taxation Treatment of Insurance-Linked Securities 307\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eAdam Blakemore and Oliver Iliffe\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e24.1 The Directive and the taxation of UK ISPVs 308\u003c\/p\u003e \u003cp\u003e24.1.1 The implementation of the Directive in the UK 308\u003c\/p\u003e \u003cp\u003e24.1.2 Implementation of the ISPV framework in the UK 308\u003c\/p\u003e \u003cp\u003e24.1.3 UK tax treatment of ISPVs 310\u003c\/p\u003e \u003cp\u003e24.2 Non-UK insurance special purpose vehicles 315\u003c\/p\u003e \u003cp\u003e24.2.1 Tax residence status of the issuer 316\u003c\/p\u003e \u003cp\u003e24.2.2 Tax residence status of the issuer’s agents 317\u003c\/p\u003e \u003cp\u003e24.2.3 Location and management of the issuer’s assets 318\u003c\/p\u003e \u003cp\u003e24.3 Indirect taxes and withholding of income tax 320\u003c\/p\u003e \u003cp\u003eFurther reading 321\u003c\/p\u003e \u003cp\u003e\u003cb\u003e25 The US Federal Income Taxation Treatment of Insurance-Linked Securities 323\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eDavid S. Miller and Shlomo Boehm\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e25.1 Avoiding US corporate income tax for the issuer 324\u003c\/p\u003e \u003cp\u003e25.1.1 Overview 324\u003c\/p\u003e \u003cp\u003e25.1.2 Trade or business in the United States 325\u003c\/p\u003e \u003cp\u003e25.1.3 Procedures followed by catastrophe bond issuers to avoid substantive business activities in the United States 326\u003c\/p\u003e \u003cp\u003e25.1.4 Section 864(b)(2) safe harbor 328\u003c\/p\u003e \u003cp\u003e25.2 Withholding tax and excise tax 328\u003c\/p\u003e \u003cp\u003e25.2.1 Overview 328\u003c\/p\u003e \u003cp\u003e25.2.2 Descriptions of insurance-linked instruments written on standard ISDA forms 330\u003c\/p\u003e \u003cp\u003e25.2.3 Federal income tax definition of notional principal contracts 331\u003c\/p\u003e \u003cp\u003e25.2.4 Put options 334\u003c\/p\u003e \u003cp\u003e25.2.5 The Bank of America case (income not clearly described within any other generally recognised category) 334\u003c\/p\u003e \u003cp\u003e25.3 US federal income tax treatment of an investor in a catastrophe bond issuer: overview 335\u003c\/p\u003e \u003cp\u003e25.3.1 US investors 335\u003c\/p\u003e \u003cp\u003e25.3.2 Timing and character of income and gain of the issuer with respect to the permitted investments, the total return swap and the insurance-linked instrument 338\u003c\/p\u003e \u003cp\u003e25.3.3 Foreign investors 339\u003c\/p\u003e \u003cp\u003e25.3.4 Notes that are treated as indebtedness for federal income tax purposes 339\u003c\/p\u003e \u003cp\u003eReference 339\u003c\/p\u003e \u003cp\u003e\u003cb\u003e26 Regulatory Issues and Solvency Capital Requirements 341\u003cbr\u003e \u003c\/b\u003e\u003ci\u003eMark Nicolaides, Simeon Rudin, Rick Watson and Katharina Hartwig\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003e26.1 Regulatory issues relevant for ILS sponsors 341\u003c\/p\u003e \u003cp\u003e26.1.1 Solvency capital 341\u003c\/p\u003e \u003cp\u003e26.1.2 Recognition of sponsors’ claims against SPV as eligible assets 342\u003c\/p\u003e \u003cp\u003e26.2 Solvency I 343\u003c\/p\u003e \u003cp\u003e26.2.1 Overview 343\u003c\/p\u003e \u003cp\u003e26.2.2 Requirement to maintain a solvency margin 344\u003c\/p\u003e \u003cp\u003e26.2.3 Structuring ILS under EU Directives to enhance solvency margins 348\u003c\/p\u003e \u003cp\u003e26.3 Solvency II 351\u003c\/p\u003e \u003cp\u003e26.3.1 Valuation of assets and liabilities 353\u003c\/p\u003e \u003cp\u003e26.3.2 Determination of technical provisions 353\u003c\/p\u003e \u003cp\u003e26.3.3 Solvency capital requirement 354\u003c\/p\u003e \u003cp\u003e26.3.4 Minimum capital requirement 358\u003c\/p\u003e \u003cp\u003e26.3.5 Own funds 359\u003c\/p\u003e \u003cp\u003e26.3.6 Investments 360\u003c\/p\u003e \u003cp\u003e\u003cb\u003eAppendix A: Standard formula, solvency capital requirement (SCR) 361\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eA. 1 Calculation of the basic solvency capital requirement 361\u003c\/p\u003e \u003cp\u003eA. 2 Calculation of the non-life underwriting risk module 361\u003c\/p\u003e \u003cp\u003eA. 3 Calculation of the life underwriting risk module 362\u003c\/p\u003e \u003cp\u003eA. 4 Calculation of the market risk module 362\u003c\/p\u003e \u003cp\u003eIndex 363\u003c\/p\u003e \u003cp\u003e\u003ci\u003eAbout the editors\u003c\/i\u003e\u003c\/p\u003e\u003cp\u003e\u003cb\u003eDR PAULINE BARRIEU\u003c\/b\u003e is a Reader (Associate Professor) at the London School of Economics. She has two PhDs in Mathematics and in Finance. Her research interests are mainly on the study of problems at the interface between finance and insurance, in particular ILS. She also works on quantitative methods for risk measurement and robust decision making, with applications in finance and environmental economics.\u003c\/p\u003e\u003cp\u003e\u003cb\u003eLUCA ALBERTINI\u003c\/b\u003e is Chief Executive Officer of Leadenhall Capital Partners, an asset management company dedicated to insurance linked investments strategies. Luca has over 16 year’s securitisation experience, having worked at Citibank, GE Capital, Credit Suisse First Boston and at Swiss Re, where he became responsible for the European Insurance Linked Securities team.\u003c\/p\u003e  \u003cp\u003eThe convergence of insurance with the capital markets has opened up an alternative channel for insurers to transfer risk, raise capital and optimize their regulatory reserves as well as offering institutions a source of relatively liquid investment with limited correlation with other exposures. One of the financial instruments allowing for the cession of insurance-related risks to the capital markets is Insurance-Linked Securities (ILS).\u003c\/p\u003e\u003cp\u003eThis book provides hands-on information essential for market participants, drawing on the insights and expertise of an impressive team of international market players, representing the various aspects and perspectives of this growing sector.\u003c\/p\u003e\u003cp\u003eThe book presents the state of the art in Insurance-Linked Securitization, by exploring the various roles for the different parties involved in the transactions, the motivation for the transaction sponsors, the potential inherent pitfalls, the latest developments and transaction structures and the key challenges faced by the market.\u003c\/p\u003e\u003cp\u003eThe book is organized into parts, each covering a specific topic or sector of the market. After a general overview of the ILS market, the Insurance-Linked Securitization process is studied in detail. A distinction is made between non-life and life securitization, due to the specificities of each sector. The process and all the actors involved are identified and considered in a comprehensive and systematic way. The concepts are first looked at in a general way, before the analysis of relevant case studies where the ILS technology is applied.\u003c\/p\u003e\u003cp\u003e\u003cb\u003eParticular focus is given to:\u003c\/b\u003e\u003c\/p\u003e\u003cul\u003e\n\u003cli\u003ethe key stages in both non-life and life securitizations, including the general features of the transactions, the cedant’s perspectives, the legal issues, the rating methodologies, the choice of an appropriate trigger and the risk modeling,\u003c\/li\u003e\n\u003cli\u003ethe particular challenges related to longevity securitization,\u003c\/li\u003e\n\u003cli\u003ethe investor’s perspective and the question of the management of a portfolio of ILS, the general issues related to insurance-linked securitization, such as accounting and tax issues, regulatory issues and solvency capital requirements.\u003c\/li\u003e\n\u003c\/ul\u003e\u003cp\u003eThe book is accompanied by a website www.wiley.com\/go\/albertini_barrieu_ILS which will feature updates and additions to the various contributions to follow market developments.\u003c\/p\u003e","brand":"Wiley","offers":[{"title":"Default Title","offer_id":47990250373349,"sku":"NP9780470743836","price":171.0,"currency_code":"USD","in_stock":false}],"thumbnail_url":"\/\/cdn.shopify.com\/s\/files\/1\/1842\/7735\/files\/9780470743836.jpg?v=1761787064","url":"https:\/\/k12savings.com\/es\/products\/the-handbook-of-insurance-linked-securities-isbn-9780470743836","provider":"K12savings","version":"1.0","type":"link"}