Insurance-Linked Securities and Structured
Settlements

Abstract

Influence from direct capital markets’ participation in reinsurance programs, coupled with catastrophic insured losses well below historical averages in 2013, has put significant pressure on global catastrophic reinsurance pricing. There continues to be an increasing use and acceptance of indemnity-based triggers as the spread differential between that and other parametric and/or index-based triggers diminishes. Bespoke parametric structures for non-peak risks are becoming more common. The insurance-linked securities market is expanding in terms of both breadth of products and geography. Mortality risk remains a nascent market, but the extreme mortality segment is growing. Performance of the structured settlement asset-backed securities market has been stable, reflecting the stable performance of the life insurers whose annuities back the securitized pools. Despite isolated conduct episodes, the market has worked well. The court approval process has been relatively smooth. Moody’s assigns a rating of A3 or higher to 85% of the carriers whose annuity payments are the primary source of repayments under structured settlements.

TOPICS: Asset-backed securities (ABS), legal and regulatory issues for structured finance