ARIA 2021 Annual Meeting

Morton Lane, University of Illinois

This paper presents a history of natural catastrophe Insurance Linked Securities [ILS] from 2001 to the end of 2020. The varying nature of ILS issued during those two decades is captured by representing each year’s issued securities as a single portfolio. Importantly then, it is possible to trace the shifting expectations of the market of the risks being assumed and the premiums being charged year by year. A more detailed record is provided of the losses incurred by those same issues. This involves an examination of why and where losses occurred. Were they riskier bonds? What exposures caused the losses? Are there insights for investors that might help future investor performance? Given the risks the market assumed and the losses they experienced should investors be surprised or disappointed by their results? This is another way of asking if the risk analyses that natural catastrophe modeling companies provide in the issue prospectus have done a good job of predicting losses. Does experience match expectations? Too few investors, and not enough analysts are asking these forensic questions. It is believed the approach and analysis herein provide a first and an original examination these questions.