RMS Launches New Portfolio Management Platform to Support Trading of Insurance Risk

Newark, CA –  June 19, 2008 – Risk Management Solutions (RMS) today unveiled its new portfolio management platform, Miu, which supports the trading of insurance risk using RMS’ leading catastrophe risk analytics. Miu allows users to quickly quantify and tailor a portfolio of catastrophe risk positions packaged in any form: catastrophe bonds, over-the-counter (OTC) derivatives, sidecars, industry loss warranties (ILWs) and various forms of reinsurance. 

A risk profile for every live catastrophe bond is available on the platform, so users simply have to tick a box to add a new insurance-linked security (ILS) to their portfolio. By providing a transparent view of the sensitivities a risk position has to individual perils - like U.S. hurricanes or Japanese earthquakes - and its correlations to other positions, Miu enables users to include insurance risk, however it is packaged, alongside more traditional fixed-income products in their portfolios. 

“Interest in insurance-linked securities continues to grow, not least because they are largely uncorrelated with equity or debt,” commented Tibor Winkler, director of Risk Markets at RMS. “Catastrophe bonds offer attractive spreads and are capturing the attention of multi-strategy hedge funds, in addition to the traditional audience of specialist funds, arrangers, and reinsurance companies.”  He added: “With credit spreads starting to return to pre-crunch levels, the relative value of insurance-linked securities in a portfolio is becoming clear again. Miu was built to support new entrants to the insurance-linked securities market as well as core players.”

Mr. Winkler added: “Detailed information about the risks associated with investing in an insurance-linked security can be found in the offering circular, but it is a challenge for investors to quantify total portfolio-risk, as there is usually correlation between positions that are exposed to events occurring in the same peril-region.”

The platform provides the RMS view of key risk metrics for each position and for the portfolio as a whole: expected loss, attachment, and exhaustion probability.  In addition, users can change the assumptions in the model to see, for example, how loss-probabilities would change if hurricanes occurred 20% more often.

Growth of the ILS market

Although the ILS market has experienced healthy growth over the past three years, a number of investors have been deterred from entering it due to a perceived lack of transparency and the need for deep insurance expertise to fully understand the risk. Miu enables market participants with relatively limited insurance experience to model, understand, underwrite, and trade ILS and other forms of insurance risk with increased confidence.

Mr. Winkler said: “The opportunity to invest in insurance-linked securities has been restricted by the uncertainty surrounding the overall portfolio risk, but Miu provides a level playing field whereby investors can quickly see where their risks are, what is driving them, and how one catastrophe might affect their entire portfolio.”

RMS believes that market-wide use of Miu will contribute significantly to increasing the size of the ILS market.