Search results - Indices

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Indices are utilised as indicators or benchmarks of industry performance and are typically either the basis of a stand-alone product or provide a trigger to another instrument such as a catastrophe bond. Traditional-style equity indices are used as a basis for emissions trading, by referencing alternative energy companies or pioneers in carbon emissions. Equally, carbon traders are increasingly putting together structured emissions products that sometimes reference indices. Catastrophe risk transfer achieved through an index or indices is more specialist. The earliest catastrophe bond deals were mostly based on indemnity triggers, where payment by the cat bond was directly related to the sponsor’s actual losses. But these were followed by index triggers, under which the cat bond or other instruments’ losses are determined with reference to an index of losses, rather than the sponsor’s actual losses. The index may be based on industry loss, rather than the specific company losses, for example the US Property Claims Services (PCS) index. This principle of an industry loss index is taken a step further under a parametric index, where the index values (or cat bond losses) are determined solely by measured parameters of a pre-defined catastrophe event, such as a hurricane or earthquake. Beyond that are modelled losses, which are calculated by creating a synthetic portfolio of assets – or synthetic index – exposed to different hazard events. Industry loss warranty (ILW) is another index-based concept, whereby a reinsurer agrees to compensate the insurer according to losses incurred by the entire industry, not the individual insurer’s losses. At the same time, on the life side there are both longevity and mortality indices upon which deals are structured.


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STORM (Synthetic Transfer of Risk Markets) is an online news service dedicated to bringing readers a global viewpoint on all aspects of weather and insurance derivatives, catastrophe and life ILS (insurance-linked securities), and emissions trading.

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