Docstoc

Pick up lines

Document Sample
Pick up lines Powered By Docstoc
					BRAVE Partners LLP: Insurance Linked Securities                                                       2009


        ILS: Pick up lines
        BRAVE Partners, Richard Enos and Christopher Cloke-Browne, examine
        the benefits of investing in insurance related risks for institutions that are
        typically large credit investors. The insurance linked securities (ILS)
        market can hold great opportunities to the well informed investor.

        Over the last several years, the BRAVE Partners have seen a myriad of extremely profitable (even in
        hindsight) insurance investments. Most of the large banks, some of whom we’ve interacted with, were
        used to lending money to corporates and have been unable to get their arms around doing anything
        besides lending at 25 over LIBOR. These loans have usually been to the heartland of the industry of their
        home nation. To pick a country it would be the likes of, Panasonic, Sony, Toyota….. This lending would
        be to consumer durables which, as of this morning, was a fairly iffy proposition given the current
        economic state of affairs.
                                                                                  "Let’s contrast that with the non credit
        Let’s contrast that with the non credit correlated world of the
                                                                                  correlated world of the reinsurance
        reinsurance and insurance markets. Although there is a degree of          and insurance markets. Although there
        credit correlation vis-a-vis an investment portfolio of a market player;  is a degree of credit correlation vis-a-
        the core business of the carriers in the current environment remains      vis an investment portfolio of a market
        robust, largely because not much bad has happened (although in            player, the core business of the carriers
        honour of my many underwriting friends, I will put it down to sheer       in the current environment remains
        skill!).                                                                  robust, largely because not much bad
                                                                                  has happened (although in honour of
                                                                                  my many underwriting friends, I will
        The need for insurance risk capital                                       put it down to sheer skill!)."
        We all recognize that the earth is eventually going to shake again and
        the wind is going to blow again. And when that happens the capital        Richard Enos, Partner, BRAVE
        markets will do what they have always done which will be to               Partners LLP
        aggressively enter the market on an opportunistic basis. That is not a
        bad thing. In fact it is quite the opposite. When the markets need
        capital, they need capital. It might be opportunistic capital, but so be
        it. It is capital to be harnessed for an immediate need even if it portends an immediate investor
        opportunity.

        The BRAVE Partners were involved with the structuring and placement of a transaction within the last
        twelve months that, by combining capital market capabilities along with excellent carrier relationships
        produced a tremendous result for carrier, investor and afforded the retail customer with coverage not
        otherwise available.




      www.bravepartners.com |                     enquiries@bravepartners.com                         Page 1
BRAVE Partners LLP: Insurance Linked Securities                                                          2009

         Often, a credit institution will take the view that it does not understand insurance risks, whilst lending
         billions of dollars to companies like AIG, XL Capital and The Hartford. BRAVE Partners has always taken
         the view that some of these large insurance groups are highly opaque, making it very unclear what risk
         an institution is taking when lending money. To single out AIG for a moment; it is in severe financial
         difficulty on the back of failing to stick to one of the basic principles on insurance business - manage
         your aggregates. To translate this insurance-speak into clearer language, manage your aggregates
         means, ensure that your maximum possible (note the emphasis, this is possible not conceivable) loss
         from any one risk can be absorbed by the business. AIG failed to manage their aggregates to US sub-
         prime mortgages, but it was hard to ascertain this from the large, complex financial reports produced by
         the company.


         Targeting good risks is interesting
        In contrast, working with a company to finance or transfer a specific, well identified block of risk means
        that a financial risk taker can clearly understand the risk that it is taking on. Watching the weather
                                                          channel, or like me a trip to Florida itself, will give an
"In contrast, working with a company to finance           investor taking risk on a $10bn insurance industry in
or transfer a specific, well identified block of risk     Florida, a good idea of their position.
means that a financial risk taker can clearly
understand the risk that it is taking on."                 Some institutions are not beginning to understand the
Christopher Cloke-Browne, Managing Partner,                benefit of the true diversification that insurance risks
BRAVE Partners LLP                                         bring and the excellent returns that are available at
                                                           the right point in the pricing cycle. Returning to Japan
                                                           for a moment, there are clearly investors there who
         are getting comfortable with insurance risks. Mitsubishi Corporation and Pentilia have just raised about
         $260m equivalent for a fund that will take on a diversified pool of insurance risks. BRAVE Partners
         believes that the market will see more of this.

         Well, we’re were a month away from hurricane season and of course
         earthquake season is 12 months a year so we’ll see how things play          Some institutions are not beginning
         out. For you risk takers, I will be in Florida in August and will promise   to understand the benefit of the
                                                                                     true diversification that insurance
         to give you early warning if the waves get too choppy and the breeze
                                                                                     risks bring and the excellent
         bucks up a bit too much. That said, either scenario portends
                                                                                     returns that are available at the
         opportunity. The alternative seems to be lending a load of cash to          right point in the pricing cycle.
         major corporates in the very great hope that the economy and credit         Returning to Japan for a moment,
         situation turns north. I like insurance and reinsurance related risk        there are clearly investors there
         better these days.                                                          who are getting comfortable with
                                                                                     insurance risks. Mitsubishi
         So BRAVE Partners LLP suggests that large credit institutions and           Corporation and Pentilia have just
         investors practice their pick up lines - that would be picking up lines     raised about $260m equivalent for
         of insurance risks.                                                         a fund that will take on a
                                                                                     diversified pool of insurance risks.




       www.bravepartners.com |                       enquiries@bravepartners.com                         Page 2
BRAVE Partners LLP: Insurance Linked Securities                                                        2009

        BRAVE Partners services                                                  • The credit crunch has highlighted
        BRAVE Partners LLP can assist clients in understanding the structures,     the benefit of investing in
        pricing and opportunities in the insurance linked securities market.       insurance risks through insurance
                                                                                   linked securities. These risks are:
                                                                                     o Well compensated at the right point
                                                                                       in the pricing cycle.
                                                                                    o Unrelated, not just uncorrelated,
                                                                                       with financial market risk (apart
                                                                                       from obvious exceptions - eg Japan
                                                                                       quake and the Nikkei)

                                                                                 • BRAVE Partners LLP can advise
                                                                                   clients on the opportunities,
                                                                                   structure, players and investor
                                                                                   bases in the insurance linked
                                                                                   securities market.

                                                                                 enquiries@bravepartners.com

                                                                                 www.bravepartners.com




      www.bravepartners.com |                     enquiries@bravepartners.com                          Page 3

				
DOCUMENT INFO
Shared By:
Categories:
Tags: Pick, lines
Stats:
views:35
posted:3/12/2010
language:English
pages:3
Description: Pick up lines