The topic was a no/low-correlation asset and the projector system reflected the same: of the three speakers, one of their presentations would not display on the screen—not that it took much away from the crowd's interest. The 45-50 attendees at the Cat Bonds Event in Toronto on October 6 were on the edge of their seats. Some listeners were grizzled vets of the ILS (Insurance-Linked Securities) market, while others (of other areas of AI and asset management) were keen to learn firsthand how ILSs might fit into portfolios. This made for an excellent cross-section of queries following each presenter's short talks. First up was Barney Schauble, managing partner at Nephila Capital; then Bernard Van der Stichele, assistant PM in tactical asset allocation and ILS at Ontario Teachers' Pension Plan; and David Kaposi (whom readers may recognize from our March 2010 Infrastructure Panel Luncheon), principal and keyman at the global alternatives 'boutique' within Mercer Consulting.

The main themes of the evening reinforced and built upon the CAIA curriculum. ILS is a new investible asset class, having been around for about 200 years as private transactions, only since circa 1994 have there been traded securities such as Cat bonds. The market for Cat bonds is relatively small—about $3 billion in new issuance each year, compared to about $150 billion in reinsurance and, of course, much larger private and public equity and bond markets. However, for practitioners in this area, there are sources of alpha—or at least profit—since, in many cases, although it's a zero-sum game, many participants in the market expect to lose a little every year (the premium) for the benefit of coverage if disaster strikes. The securities, interestingly, are not as affected by global warming and other long-horizon factors since the contracts are typically one year or shorter tenor—although there are trends one needs to keep an eye on. Also, modeling, unlike the application of physics to securities markets, is more robust and predictable (inasmuch as forecasting the weather can be) since, for example: 4' of rain cannot fall in a day in the Sahara; the larger the hurricane, the slower it moves...it's physics used to determine future physical phenomena, a much better fit. Be that as it may, investors need to be diligent in understanding and negotiating contract wording—as one speaker said: the devil is in the details.

The organizers would like to thank DGAM for their generous sponsorship as well as AIMA Canada, the Toronto CFA Society and BPM Magazine for getting the word out...not to forget the many guests invited by CAIA members and candidates. Thank you all for helping make this one of our best of the year.

Look forward to CAIA Canada's next events in Toronto: Tail-Risk Hedging on November 10th and our annual Holiday Prognostications evening on December 8th. See you there!

James Burron
CAIA Canada Chapter Executive