Newark, Calif. — Risk Management Solutions (RMS), a catastrophe risk management technology company, unveiled its new portfolio management platform, Miu, which supports the trading of insurance risk using RMS’ catastrophe risk analytics. Miu allows users to quantify and tailor a portfolio of catastrophe risk positions packaged in any form: catastrophe bonds, over-the-counter derivatives, sidecars, industry loss warranties 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, such as U.S. hurricanes or Japanese earthquakes, and its correlations to other positions, Miu is designed to enable 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,” says Tibor Winkler, director of Risk Markets at RMS, Newark, Calif. “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.” In addition, he believes, “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.”
Detailed information about the risks associated with investing in an insurance-linked security can be found in the offering circular, Winkler adds, “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.
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 is designed to enable market participants with relatively limited insurance experience to model, understand, underwrite and trade ILS and other forms of insurance risk with increased confidence.
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