ISO Casualty Index launches; could result in casualty insurance-linked securities

The Insurance Services Office (ISO), a member of the Verisk group of companies and the provider of the PCS Catastrophe Loss Index which is used in many catastrophe bond deals, has today launched a new index product aiming to target the casualty insurance market. ISO Casualty Index^TM is a new service which will provide loss ratio and loss development trends for select lines of casualty insurance.

The index is based statistical data that ISO collects from more than 700 insurer groups throughout the U.S. and contains more than 15 billion transactional records. The statistical data used for the index also underlies ISO’s advisory prospective loss costs and rating information. ISO says that the index provides an alternative way to manage casualty risk, and permits customers to track underwriting cycles, manage adverse loss experience, and benchmark performance.

“The Index is a timely source of experience-year information representing specific markets over a broad segment of the casualty insurance industry. The depth and breadth of the statistical data collected by ISO allows for a high degree of Index customization and enables historical correlation testing between an individual insurer’s results and the Index,” said Carole Banfield, executive vice president at ISO.

At the moment the Index covers ten defined segments within the general liability and commercial auto lines of business. ISO updates the index on a quarterly basis for the rolling 10 experience years within each segment.

“The granularity of the data is what differentiates this Index and ISO,” said Virginia Prevosto, vice president at ISO. “The Index is designed for use by actuaries, underwriters, and other insurance professionals, in addition to participants in the insurance-linked securities markets.”

The index was developed over the past year by the ISO with the assistance and participation of JLT Re who cultivated interest and input from their customers and market participants from reinsurance companies to the capital markets.

Greg Habay, senior vice president at JLT Re, stated, “The combination of ISO’s data resources and brand recognition coupled with the need for such an index led to this logical strategic relationship between ISO and JLT Re.”

“This is an exciting foray into the world of casualty insurance that has been off limits for most insurance-linked securities investors, and it will provide valuable coverage to buyers and diversification to sellers,” adds Habay.

JLT Re are the first company to license the ISO Casualty Index to facilitate innovative casualty risk transfer and insurance-linked securities transactions.

Risk transfer and reinsurance market participants we have spoken to over the years have always stated that a benchmark index was required to enable the insurance-linked securities and catastrophe bond market sector to broaden its scope to begin developing ways to transfer casualty line risks to the capital markets. With the launch of this index today, we could see these lines of business receive much more attention from ILS and cat bond market participants. Any ILS transaction involving casualty lines risks would be of great interest to investors in the sector as it would offer a new source of diversification away from the natural catastrophe risks more traditionally involved in ILS transactions. Casualty cat bond anyone?