Risk Management Solutions (RMS) launched a new portfolio management platform today called Miu. The new platform supports the trading of insurance risk using RMS leading catastrophe risk analytics.
Miu will help insurers 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.
By providing this 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, but it is also packaged, alongside more traditional fixed-income products in their portfolios.
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," said Tibor Winkler, director of risk markets at RMS.
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 such as how loss-probabilities would change if hurricanes occurred 20% more often.
Miu was built to support new entrants to the insurance-linked securities because it enables market participants with relatively limited insurance experience to model, understand, underwrite, and trade ILS and other forms of insurance risk with increased confidence. Winkler said that 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 drives them, and how one catastrophe might affect their entire portfolio.
Interest in insurance-linked securities continues to grow, not least because they are largely uncorrelated with equity or debt, Winkler said. 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. With credit spreads starting to return to pre-crunch levels, the relative value of insurance-linked securities in a portfolio is becoming clear again.