Public market status can increase cat bond transparency and efficiency: Lane at ILS Asia 2021

If the US Securities and Exchange Commission recognized the maturity of the catastrophe bond market and viewed it as a public market, it would add both efficiency and transparency to this part of the insurance-linked securities (ILS) industry, Morton Lane.

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

Entitled ‘ILS What We Expected; what we got, ‘the keynote provided a detailed examination of the traditional 144A catastrophe bonds of the past two decades.

After examining many facets of the cat bond market, including expected loss, premium, coverage outstanding, etc., Lane debated whether or not investors’ losses over the past 20 years were as expected.

This discussion can now be viewed on-demand here.

Towards the end of his presentation, Lane made a very interesting and valid point about the availability of Cat Bond data; he uses the same data for his expert and insightful analysis.

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

“I think if there was more transparency, the market would be more innovative because they could see their experiences. And so I know the SEC sees these as private market deals; they are 144A offers.

“I think the time has come for the SEC to see this rapidly maturing market as a public market so that other people can do this type of analysis and come to such conclusions,” he continued.

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

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

While the people who make the price lists, Lane explains, they don’t make them generally available to people.

“It might be easier in Europe because the regulation supposedly doesn’t apply there, but maybe not. And if you made it a public market, those prices would improve I think. And I think there is a lot of research going on on that, ”Lane said.

He adds, “And the other point is, if you’re trying to get secondary market prices, it’s even harder to get them. You can call them up via Trace. But that’s a very limited resource in the sense that it doesn’t tell you the size of the transactions that took place. But I think if you made it a public market it would be a lot more efficient. “

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

In addition to on-demand playback, we will archive every session of our online and virtual ILS Asia 2021 conference throughout the year our YouTube channel In the coming weeks, audio versions will also be uploaded to our podcast, which you can subscribe to here.

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