Public market status can add cat bond transparency & efficiency: Lane at ILS Asia 2021

Were the U.S. Securities and Exchange Commission (SEC) to recognise the maturity of the catastrophe bond marketplace and consider it a public market, it would help both the efficiency and transparency of this part of the insurance-linked securities (ILS) industry, according to Morton Lane.

The penultimate day of our virtual ILS Asia 2021 conference, held in association with our headline sponsor AM RE Syndicate Inc., ended with a keynote speech and Q&A with Morton Lane, President, Lane Financial LLC and Director, MSFE Program, The University of Illinois in Urbana-Champaign.

Titled ‘ILS, what we expected; what we got,’ the keynote provided a detailed examination of traditional 144A catastrophe bond issuances over the past two decades.

After an exploration of many facets of the cat bond market, including the expected loss, premium, outstanding coverage and so on, Lane debated whether or not losses experienced by investors over the past 20 years were in line with expectations.

This discussion can now be viewed on-demand here.

Towards the end of his presentation, Lane raised a very interesting and valid point on the availability of cat bond data; the same data he uses for his expert and insightful analysis.

“I’m lucky to have access to this data, I don’t think other people do. I think if they did, they could do better and more analysis, and come to better or more informed conclusions,” said Lane.

“I think if there was more transparency the market would be more innovative because they could look at their experience. And, so, I know that the SEC considers these to be private market deals; they’re 144A deals.

“I think it’s time that the SEC considers this market, which is now maturing fast, to be a public market so that other people can do this sort of analysis and come to these sorts of conclusions,” he continued.

While still considered niche, the cat bond market is more than 20 years old and during this time, sponsors, fund managers and investors have matured and become increasingly sophisticated.

As noted by Lane, SEC regulation means that the distribution of cat bond pricing sheets is limited to qualified investors, meaning that only those exposed to this market can get that information.

While the people who make the pricing sheets, explained Lane, don’t broadly make these available to people.

“It may be easier in Europe because the regulation ostensibly doesn’t apply there, but maybe not. And, so, making it a public market would make those prices better, I think. And I think there’s a lot of research that can be done on that,” said Lane.

Adding, “And the other point about that is if you try to get secondary market prices, that’s even more difficult to get. You can get them through Trace. But that’s a very limited source in the sense that it doesn’t tell you the size of transactions that took place. But, I think, making it a public market would make this much more efficient.”

You can watch this session of ILS Asia 2021 on-demand here.

As well as the on-demand playback, we will be archiving every session from our online and virtual ILS Asia 2021 conference over on our YouTube Channel in the coming weeks and audio versions will also be uploaded to our podcast which you can subscribe to here.

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