Structured Products II: Insurance-Linked Products and Hybrid Securities

Alternative Investments: CAIA Level II, Chapter 36, Wiley Finance, 3rd Edition, 2016, pp. 1021-1052.

41 Pages Posted: 2 Sep 2020

See all articles by Urbi Garay

Urbi Garay

Instituto de Estudios Superiores de Administración (IESA)

Date Written: February 1, 2016

Abstract

Many structured products are relatively new and their participation in institutional portfolios is expected to continue to grow in the future. The first part of the chapter explores insurance-linked securities (ILS), a relatively new asset class, where we discuss catastrophe bonds and longevity risk related products.

The second part of the chapter discusses ways to invest in insurance risk. The important concept of mortality risk is analyzed, and the mechanics and investment attributes of life insurance settlements are discussed.

Finally, the third part of the chapter covers mezzanine finance products. Here we discuss the following investment vehicles available to access mezzanine finance: subordinated debt with step-up rates, subordinated debt with PIK interest, subordinated debt with profit participation, subordinated debt with warrants, and convertible loans. We also comment on the use of these hybrid securities in project finance.

Keywords: Insurance-linked securities, insurance risk, catastrophe bonds, longevity risk related products, insurance risk, mortality risk, subordinated debt with step-up rates, subordinated debt with PIK interest, subordinated debt with profit participation, subordinated debt with warrants, convertible loans

JEL Classification: G10, G12, G13

Suggested Citation

Garay, Urbi, Structured Products II: Insurance-Linked Products and Hybrid Securities (February 1, 2016). Alternative Investments: CAIA Level II, Chapter 36, Wiley Finance, 3rd Edition, 2016, pp. 1021-1052., Available at SSRN: https://ssrn.com/abstract=3659589 or http://dx.doi.org/10.2139/ssrn.3659589

Urbi Garay (Contact Author)

Instituto de Estudios Superiores de Administración (IESA) ( email )

San Bernardino 1010, Caracas
Venezuela
+58 2 5554242 (Phone)
+58 2 5510812 (Fax)

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