Swiss Re Insurance-Linked Fund Management

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Lane Financial LLC publish quarterly ILS market performance report


Lane Financial LLC (LFC) have published a report looking at market performance for the third quarter of the indices of insurance-linked securities they monitor. Lane Financial specialise in assessing the pricing and returns of ILS and catastrophe bonds.

We contacted LFC to ask for some commentary to give our readers an insight into the report. Morton Lane, President of LFC, kindly agreed to discuss the reports findings with us and his comments are below.

“At the time of the end of the June quarter ILS prices had retreated to seasonal lows, as they tend to do prior to the wind season. In our June report we offered the opinion that the seasonal decline was overdone. Now, with a relatively benign wind season, i.e. no major land-falling hurricanes, substantially behind us, prices have rebounded. The rebound is so strong that the quarterly returns were among the most robust we have seen. 2010 ILS returns are on track to be the second best returning ever from an insurance return point of view and third overall when financing is included. Some caution is however always in order, neither the wind season nor the earthquake season is over tills it’s over. Remember Chile and New Zealand had significant earthquakes this year.”

“It seems clear that absent some new events by year-end the market will soften. That is what the other graphs and charts in the report show. They also demonstrate why the ILS secondary market has such an important “canary in the coal mine” character. In the secondary market the outstanding portfolio of ILS no longer trades at a discount to its issue price – it is at a slight premium. This is a good indication of a softening market. Another such indication is our Synthetic Rate on Line index. The index (which we have consistently advised is a flawed but nevertheless diligently done assessment of where new coverages might be priced) fell from a seasonal high of 159.7 to 136.5. Since the index takes data from the ILW as well as the ILS market, we can observe that the fall in rates would have been greater, but for the stickiness of ILW prices. Then again, may be the ILW market indications are not being updated so assiduously until annual renewal process in the traditional market is further along. If that is the case, and there are no further events, the Index will fall a lot more by year end.”

Visit the Lane Financial website and download the report (registration required) to see the graphical representations of these findings.

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