The landscape of alternative risk transfer, or ART, is evolving. Instruments such as catastrophe bonds, industry loss warranties, exchange-traded indices, and collateralized risk obligations are increasingly being used to transfer risk from catastrophe-exposed organizations to the financial markets. Investors are quickly identifying these financial instruments as opportunities to diversify into assets that have low correlation with their other, more traditional holdings. As a result, annual issuance of insurance-linked securities (ILS) increased from less than $200 thousand in 1996 to more than $7 billion in 2007.

Investors need a way to evaluate the risks associated with these instruments as they are marketed. This is a non-trivial task. As the ILS market has matured, the structure of the transactions has become increasingly complex and there are more frequent instances of securities that cover multiple perils or that use hybrid payout trigger mechanisms.

Proven Solutions for Investors

AIR Worldwide (AIR) offers investors robust tools and current data to easily and accurately assess an individual instrument’s risk profile as it comes on the market, and its potential impact on an existing portfolio. AIR tools are also designed to assess the correlations between ILS holdings—a critically important feature as investors’ portfolios grow.

AIR's solution for investors is comprehensive, efficient and industry-leading. That should come as no surprise; it was developed by the same experienced team that has modeled more than $9 billion of new issuances.

AIR's solution for the capital markets consists of three key components:

• CATRADER® Modeling software allows investors to quantify and manage their risk
• Risk Transfer (Reinsurance and Securitization) Consulting services to issuers of and investors in the increasingly diverse array of reinsurance and insurance-linked securities being structured and marketed today
• ALERT™ Provides loss estimates in real time as catastrophes unfold

Listed below are additional materials of interest to issuers and investors in insurance-linked securities: