About the editors

DR PAULINE BARRIEU is a Reader (Associate Professor) at the London School of Economics. She has two PhDs in Mathematics and in Finance. Her research interests are mainly on the study of problems at the interface between finance and insurance, in particular ILS. She also works on quantitative methods for risk measurement and robust decision making, with applications in finance and environmental economics.

LUCA ALBERTINI is Chief Executive Officer of Leadenhall Capital Partners, an asset management company dedicated to insurance linked investments strategies. Luca has over 16 year's securitisation experience, having worked at Citibank, GE Capital, Credit Suisse First Boston and at Swiss Re, where he became responsible for the European Insurance Linked Securities team.

Contents
About the Contributors
Acknowledgements
1 Introduction
Pauline Barrieu and Luca Albertini
PART I NON-LIFE SECURITISATION
2 Non-life Insurance Securitisation: Market Overview, Background and Evolution
Jonathan Spry
3 Cedants' Perspectives on Non-life Securitization
3A Insurance-linked securities as part of advanced risk intermediation
Insa Adena, Katharina Hartwig and Georg Rindermann
3B Reinsurance vs Securitisation
Guillaume Gorge
3C Securitisation as a diversification from traditional retrocession
Jean-Luc Besson
4 Choice of Triggers
Dominik Hagedorn, Christian Heigl, Andreas Müller and Gerold Seidler
4.1 General aspects
4.2 Indemnity triggers
4.3 Non-indemnity triggers
4.4 Choosing the optimal trigger
5 Basis Risk from the Cedant's Perspective
David Ross and Jillian Williams
5.1 Introduction
5.2 Investor vs sponsor risk
5.3 Trigger types
5.4 Catastrophe models
5.5 Sources of basis risk
5.6 Defining basis risk
5.7 Quantifying basis risk
5.8 Minimising basis risk
5.9 Conclusion
Acknowledgements
References
6 Rating Methodology
Cameron Heath
6.1 Standard & Poor's ratings services' rating process
6.2 Risk analysis
6.3 Legal and swap documentation review process
6.4 Impact on sponsor
References
7 Risk Modelling and the Role and Benefits of Cat Indices
Ben Brookes
7.1 Components of a cat model
7.2 Insurance-linked securities
7.3 Cat indices
7.4 Summary
8 Legal Issues
Malcolm Wattman, Matthew Feig, James Langston, and James Frazier
8.1 The note offering - federal securities law implications
8.2 The note offering - the offering circular
8.3 Types of transactions
8.4 Conclusion
9 The Investor Perspective (Non-Life)
Luca Albertini
9.1 The creation of a sustainable and liquid market
9.2 Key transaction features from the investor perspective
9.3 Market evolution: the investor perspective
10 ILS Portfolio Monitoring Systems
Tibor Winkler and John Stroughair
10.1 Introduction
10.2 Miu - An ILS platform in a convergent space
10.3 RMS library of cat bond characterisations
10.4 Conclusion
11 The Evolution and Future of Reinsurance Sidecars
Douglas J. Lambert and Kenneth R. Pierce
11.1 A brief history of the brief history of sidecars
11.2 Sidecar structures
11.3 The appeal of sidecars
11.4 Structuring considerations
11.5 The outlook for sidecars
11.6 Conclusion
12 Case Study: A Cat Bond Transaction by SCOR (Atlas)
Emmanuel Durousseau
12.1 Introduction: SCOR's recent history
12.2 Atlas III and IV: Background
12.3 Atlas: Main characteristics
12.4 Basis Risk
12.5 Total Return Swap
12.6 Conclusion
Appendix A
A.1 Definition of events
A.2 Extension events
13 Case Study: Swiss Re's New Natural Catastrophe Protection Program (Vega)
Jay Green and Jean-Louis Monnier
13.1 A positive evolution of Swiss Re's ILS strategy
13.2 Swiss Re accesses multi-event natural catastrophe coverage
13.3 The first ILS to use a cash reserve account as credit enhancement
13.4 Innovation leads to more efficient protection
PART II LIFE SECURITISATION
14 General Features of Life Insurance-Linked Securitisation
Norman Peard
14.1 Life insurer corporate and business structures, risks and products
14.2 Actors and their roles
14.3 Process
15 Cedants' Perspectives on Life Securitisation
15A A cedant's perspective on life securitisation
Alison McKie
15A.1 Why securitise?
15A.2 Life ILS can be complex
15A.3 Outlook for life ILS
15B A cedant's perspective on life securitisation
Chris Madsen
15B.1 Key considerations
15B.2 Examples of securitisation opportunities
15B.3 Differences between securitisation and reinsurance
16 Rating Methodology
Harish Gohil
16.1 Fitch's approach to the rating process
16.2 Insurance risk analysis
16.3 Zest: a VIF case study
References
17 Life Securitisation: Risk Modelling
Steven Schreiber
17.1 Modelling of a catastrophic mortality transaction
17.2 Modelling of a VIF transaction
18 Life Insurance Securitisation: Legal Issues
Jennifer Donohue
18.1 Monetisation of future cash flows
18.2 Legal aspects of life insurance securitisation - some key features
18.3 Some examples of value-in-force securitisation/monetisation
18.4 Outlook
19 The Investor Perspective (Life)
Luca Albertini
19.1 Life insurance-linked risks and investor appetite
19.2 Key transaction features from the investor perspective
19.3 Market evolution: the investor perspective
20 Longevity Securitisation: Specific Challenges and Transactions
Jennifer Donohue, Kirsty Maclean and Norman Peard
20.1 Mortality and longevity risk
20.2 A market for longevity risk
20.3 Key structural aspects of longevity risk securitisation
20.4 Some features of longevity risk
21 Longevity Risk Transfer: Indices and Capital Market Solutions
Guy Coughlan
21.1 The nature of longevity risk
21.2 The market for longevity risk transfer
21.3 Importance of indices, tools and standards
21.4 Capital market instruments for longevity risk transfer
21.5 Customised vs standardised longevity hedges
21.6 Case study: customised longevity hedge
21.7 Implementing a standardised index-based longevity hedge
21.8 Conclusions
References
22 Case Study: A Cat Mortality Bond by AXA (OSIRIS)
Sylvain Coriat
22.1 Catastrophic pandemic risk
22.2 Considered risk transfer tools
22.3 Detailed structure
22.4 Risk analysis
22.5 Investors' reaction
22.6 Spread behaviour
22.7 Next steps
Reference
23 Case Study: Some Embedded Value and XXX Securitisations
Michael Eakins and Nicola Dondi
23.1 Embedded value securitisation - Avondale S.A.
23.2 XXX securitisation
PART III TAX AND REGULATORY CONSIDERATIONS
24 The UK Taxation Treatment of Insurance-Linked Securities
Adam Blakemore and Oliver Iliffe
24.1 The Directive and the taxation of UK ISPVs
24.2 Non-UK insurance special purpose vehicles
24.3 Indirect taxes and withholding of income tax
Further reading
25 The US Federal Income Taxation Treatment of Insurance-Linked Securities
David S. Miller and Shlomo Boehm
25.1 Avoiding US corporate income tax for the issuer
25.2 Withholding tax and excise tax
25.3 US federal income tax treatment of an investor in a catastrophe bond issuer: overview
Reference
26 Regulatory Issues and Solvency Capital Requirements
Mark Nicolaides, Simeon Rudin, Rick Watson and Katharina Hartwig
26.1 Regulatory issues relevant for ILS sponsors
26.2 Solvency I
26.3 Solvency II
Appendix A: Standard formula, solvency capital requirement (SCR)
Index

This book provides a much needed reference for finance practitioners on the rapidly growing Insurance Linked Securities markets. It will provide readers with the state of the art in Insurance-Linked Securitization, introducing the different parties involved in the transactions and their roles, the motivation for the transaction sponsors, the potential inherent pitfalls, the latest developments and transaction structures but also the key challenges faced by the market at each stage. The book will also focus on more general issues faced by the industry, including accounting and tax issues, regulatory issues and solvency capital requirements - all tackled from international perspectives.
The book will be organized into two parts making a distinction between non-life and life securitization in order to accommodate the specificities of each sector. Each chapter covers a specific topic or sector of the market. After a general overview over the ILS market, the Insurance-Linked Securitization process is studied in detail.
Contributions will be from leading practitioners in the field, and will feature case studies and worked examples to illustrate more complicated transactions and techniques.