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AIR Worldwide dominating risk modeling & analysis of catastrophe bonds


AIR Worldwide Corporation’s domination of the market for providing risk modeling and analytical services to catastrophe bond issuers appears to be growing. Back in April we wrote that they’d been involved in over $10b worth of catastrophe bond deals since the market began and had modeled 70% of the cat bond deals completed in 2008. This year they’ve increased their share of the market and have been involved in over 80% of deals issued in 2009.

Is this dominance a good thing for the marketplace? Probably not, having competition is what keeps a market healthy, innovative and always striving to provide better solutions. Could we see a day where AIR provided 100% of all risk modeling services to the cat bond market? I doubt it, I don’t believe issuers would accept that they had no choice and would perhaps start to model risks themselves. The full press release from AIR is below.

BOSTON – AIR Worldwide Corporation (AIR) today announced that it has provided risk modeling and analytical services for over 80% of the $2.1 billion of catastrophe bonds issued to date in 2009. AIR has been the modeling and calculation agent for many significant ILS transactions this year, including the groundbreaking “MultiCat Mexico 2009 Ltd.,” a partnership between the World Bank and Mexico to help manage catastrophe risk from multiple perils more effectively.

“We are very pleased with the success of the MultiCat Mexico 2009 transaction which rightly rewards an extensive and thorough technical preparation,” said Ivan Zelenko, Head of Derivatives and Structured Finance, the World Bank Treasury. “We have been well aware of the flexibility shown by AIR Worldwide in the risk modeling side of the deal when we were working on the optimal bond structure. AIR deserves recognition for their unfailing availability and readiness to promptly work on the risk parameters for three natural hazards which we managed to efficiently transfer to capital markets.”

“Using a parametric trigger structure, MultiCat Mexico 2009 will provide cover against multiple perils—losses from certain size earthquakes as well as Pacific and Atlantic hurricanes,” said Salvador Perez, Risk Analysis Director, Ministry of Finance, Government of Mexico. “AIR’s models provide the foundation for modeling catastrophes in areas like Mexico that are seeking to use alternative risk transfer mechanisms to place their risk directly in the financial markets.”

In 2009 to date, AIR Worldwide has modeled the risk profile for eight securities covering North America and Europe, providing cover for such perils as tropical cyclones, earthquakes, extratropical cyclones (winter storms), severe thunderstorms and wildfires. The instruments employ a variety of trigger types, ranging from parametric to indemnity, modeled loss and LAZR (Long-Term Aggregate Zonal Reinsurance).

AIR supported the “Atlas V” transaction, the first catastrophe bond issued after the 2008 credit crisis. The transaction uses the recently developed LAZR hybrid trigger, combining state-level PCS® industry loss estimates and AIR’s model losses by county. The Atlas V structure provides investors with the clarity of a PCS trigger, while disaggregating loss estimates using AIR’s post-event loss calculation methodology to enable the issuer to manage basis risk at a more granular level.

“As the industry continues to evolve, AIR is committed to supporting the development of innovative transactions,” said David Lalonde, FCAS, FCIA, MAAA, senior vice president at AIR Worldwide. “Not only has AIR expanded the scope of perils and trigger types used to model a wide range of insurance-linked securities, but we have continued to be innovative in helping non-insurance organizations, such as governments, transfer risk.”

AIR is the leading provider of catastrophe risk modeling and analytical services for insurance-linked securities. Since acting as the modeling agent for the first catastrophe bond in 1996, AIR has participated in many of the insurance industry’s landmark securitization transactions. Thus far in 2009, AIR has acted as the modeling agent for over 80% ($1.7 billion) of the $2.1 billion of catastrophe bonds issued. In total, AIR has acted as the modeling agent for over $10 billion in insurance-linked-securities since 1996 and over 50% of outstanding capital in this market.

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