A benchmark for casualty risk transfer transactions from the ISO

by Artemis on March 30, 2011

Yesterday we wrote about the launch of the ISO Casualty IndexTM by the Insurance Services Office. This could be an important piece of the evolution of the catastrophe bond and insurance-linked securities markets that helps the markets broaden their scope to include casualty lines of insurance business.

To get a little more insight for our readers on this potentially important development we spoke with Joseph M. Izzo, assistant vice president and associate actuary of ISO’s Commercial Lines Information and Analytics Division, to find out how he see’s this new casualty index helping the market develop.

He commented; “We envision ISO Casualty Index becoming a benchmark in casualty risk transfer transactions (cat bonds, ILWs, etc.) in much the same way that another ISO product – PCS Index – is a benchmark in catastrophe risk transfer transactions. By focusing on two data series – loss ratios and loss development trends – the ISO Casualty Index could be used as a benchmark in capital markets equivalent of accident year stop-loss and adverse loss development covers.”

It’s clear to see the potential that this new index has to help the market expand. The PCS Index has become a widely used tool for benchmarking catastrophe risks and is used in many of the capital market cat bond transactions we cover as a trigger index. It will be interesting to follow the development and see how re/insurers use this new index to create risk transfer opportunities and new way’s to transfer a portion of their casualty risks off balance sheet and over to the capital markets.

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