WO2001077969A1

WO2001077969A1 - Method and system for insurance policy backed securities

Info

Publication number: WO2001077969A1
Application number: PCT/US2001/011816
Authority: WO
Original assignee: Mctavish Enterprises, Llc
Priority date: 2000-04-11
Filing date: 2001-04-11
Publication date: 2001-10-18
Also published as: AU2001253371A1

Abstract

The preferred embodiment for insurance policy backed securities of the present invention includes acquiring a pool of similar type of insurance risks from an insurance carrier (10) and includes a specialized reinsurance company (20) which assesses the pool of risks to determine whether to acquire the pool of risks from the insurance carrier (10). The method further includes placing an expected loss amount in a bankruptcy protected cell fund (30). In addition, the specialized reinsurance company (20) provides for the insurance carrier's (10) costs associated with the pool of risks. The expected losses are analyzed by the specialized reinsurance company (20) for payment patterns and an expected amount of invested income to be generated. The resulting present value is then converted into securities and issued by the specialized reinsurance company (20).

Description

METHOD AND SYSTEM FOR INSURANCE POLICY BACKED SECURITIES

Background Of The Invention

General Background of Securitization

Securitization is the process proved in many financial services businesses where bonds or securities are created from pools of financial products ("assets"). Historically, these assets have included residential and commercial mortgages, auto loans, credit cards, and other forms of financial instruments. The process of securitization for each of these pools of assets is generally as follows: a) aggregate a group of similar financial products, b) identify common cash flow patterns inherent in the asset pool (e.g., loan repayment), c) place the pool into a trust dedicated exclusively for the benefit of a security instrument issued by the trust, and d) issue a security instrument from the trust whose repayment pattern matches the cash flow of the pool of assets.

Since the first residential mortgage securitization was completed over 30 years ago, securitization has dramatically changed the manner in which financial service companies fund, price, and account for most financial assets. Securitization has been the core of the λdisintermediation" of many financial institutions, most notably commercial banks, savings and loans, and thrifts. Securitization has proven to be a much more cost and capital-effective means of funding financial assets than the traditional bank method of using depositors' monies to make loans .

Insurance Securitization

Insurance is one of the last major classes of financial services that has not been revolutionized by securitization. Structures have been developed by several leading investment banks to securitize insurance; however, these structures are focused on one, narrow aspect of the insurance business: the risk of catastrophe loss. These structures, or catastrophe bonds ("cat bonds"), have similar, common elements. An investor purchases a large issue of bonds from a special trust . The trust issues a catastrophe reinsurance contract to an insurer, promising to pay if a specific type of catastrophe (e.g., hurricane) occurs. If the catastrophe occurs, the trust repays the loss and investors lose the proceeds. If the catastrophe does not occur, the investors are repaid the bonds plus interest. The rate of interest is unusually high to reflect the probability of the catastrophic event. Cat bonds provide a method by which traditional insurance companies can offload the risk of catastrophic loss. They are not, however, traditional securitizations as briefly described above that changes the methodology by which insurers fund their business.

Dynamics of the Property and Casualty Insurance Business The property and casualty ("P&C") insurance business is a diverse industry with approximately US$ 275 billion of premium volume in 1998. It is a fragmented industry, with over 2,500 P&C companies in the United States alone.

Risks underwritten by P&C companies include products ranging from traditional auto liability to more complex catastrophe and environmental exposures .

Despite the wide range of coverages, over 70% of the

P&C business is actually dedicated to five major standard lines of business:

Premium Line of Business (in U. S . $ Bil) Percent

Auto liability 88 32.0% Auto physical damage 22 8.0% Homeowners 30 10.9%

Workers Compensation 29 10.5% Small Business Owners 25 (*) 9.1%

Total 194 70.5%

Source : A.M. Best Aggregates and Averages 1998 (*) Estimate All of these lines of business are generally characterized by small individual insurance risks, large amount of state regulation on policy form and rate, and strong statistical support. Most risks are written on an occurrence basis, or losses must occur when the policy was in force for coverage, regardless of when the insurer was notified of the loss.

P&C insurance is a risk assessment and cash flow timing business. Underwriters quantify the expected value of loss through actuarial and statistical analyses. Companies take on broad amounts of risk from a large number of individual policyholders . Claims are paid to a smaller pool of claimants. As the pool of policyholders increase in size, this expected number becomes highly predictable, with usually little deviation between expected and actual. Insurers use premiums to pay for origination (e.g., commissions) and back office costs (e.g., policy administration, etc.).

Insurers base their core operations on the management of expected losses. However, other losses the insurer may face include : a) Losses related to normal standard deviation between expected and actual loss; b) Higher levels of loss due to mispricing of risk; c) Unusual losses resulting from natural disasters

(catastrophes) ; and d) Emergent losses from the legal environment (e.g., asbestos) .

The P&C industry is highly regulated. Regulation is done by the individual states and involves standardized rate and form, licensing to write insurance, minimum capital requirements, and accounting methods (statutory '^' accounting) . Minimum capital standards vary by state but generally correlate to the premium volume written by the insurer. State regulation does not allow debt to be included in regulatory capital. As a result, most insurers have minimum debt in their capital structure, preferring a heavy concentration of equity. Most debt is held at the holding company level .

In addition, statutory accounting for insurers has a negative impact on the financial prospects of the insurance enterprise. Insurance companies make their income on the management of the expected value of loss and the investment income on loss reserves as claims are paid, often several years after the date of the loss. For accounting purposes, insurers must estimate the full amount of losses they will pay for a given amount of premiums and post reserves on the balance sheet for these expected losses. Investment income on these loss reserves, however, is recognized in the year the income was earned. Insurance companies typically price their insurance products below the actual cost of losses and operating expenses. As a result, the income of insurance business is deferred. An insurance company reports a loss on current premiums written, which is offset by the investment income generated on prior years loss reserves .

The combination of a heavy concentration of equity on the balance sheet, deferred nature of income recognition, the competition among 2,500 P&C insurers, and the lack of growth prospects of a mature market results in an industry that produces poor returns on equity ("ROE"). In addition, the deferred nature of the P&C accounting makes it difficult for new entrants into the business. Existing companies, with a critical mass of loss reserves, have relative ease of entry into new lines of business. New companies, however, must have the extra financial resources to absorb the statutory accounting penalties on the initial writings until after several years when deferred income begins to become realized. Existing companies are also noted for the antiquity of most operating systems, which in many cases result in 25-33% higher costs than dedicated third party providers. These legacy systems, firmly embedded in insurance operations, are difficult to remove.

The P&C industry is going through fundamental changes due to many forces, including alternative distribution channels (such as the Internet) , heightened awareness of catastrophe exposures, over-capitalization, poor equity returns, mature premium market, and volatility in the reinsurance market .

Companies have responded to these changes with consolidation, searching for niche markets, building alternative distribution systems, and increased price competition for additional business. Traditional distribution channels such as independent agents are increasingly under pressure from reduced commissions, capped profit share allocations, and higher minimum premium volume targets.

In summary, the P&C business is plagued by three major problems: 1) excess equity capital producing low returns in a mature market; 2) significant deferral of income discouraging new entrants in the business; and 3) antiquated back office systems producing large inefficiencies in operating costs. What is desired, therefore, is a method and system for insurance policy backed securities that will overcome these problems .

Summary Of The Preferred Embodiment

The preferred embodiment of the method for insurance policy backed securities of the present invention includes acquiring a pool of similar type of insurance risks from an insurance carrier, providing for the insurance carrier's costs for the pool of risks, and pledging to the insurance carrier for expected losses from payments on claims made against the pool of risks. The term "insurance carrier", as used herein, includes, but is not limited to, conventional insurance carriers, government entities, associations and corporate entities. The method further includes placing the expected loss amount in a bankruptcy- remote protected cell fund, calculating an over- collateralization amount needed, if any, for the expected losses, calculating investment income expected to be generated from the protected cell fund and the over- collateralization amount, and calculating the present value of the expected investment income . Based on the expected investment income calculation and determination of expected loss payments, issuing for sale securities in the amount of the present value of the expected investment income and the over-collateralization amount, placing proceeds from the sale of securities in the amount of the over- collateralization amount in the protected cell fund, paying securities owners as the securities become due, and paying for claims made against the pool of risks.

The preferred embodiment of the system of the present invention for insurance policy backed securities for a pool of similar type of insurance risks includes a computer with a processor and memory, where the computer has access to actuarial data for the type of insurance risks, and a software program accessible to the processor and operating thereon. The software is programmed to perform the following functions: calculating an over-collateralization amount needed, if any, for expected losses from payments on claims made against the pool of insurance risks, calculating investment income expected to be generated .from the expected loss amount and the over-collateralization amount, and calculating the present value of the expected investment income . The system further includes a storage device electrically coupled to the computer, where the storage device stores data relating to the securities.

Brief Description Of The Drawings FIG. 1 shows an embodiment of the insurance policy backed security structure of the present invention.

FIG. 2 shows an embodiment of a system of the present invention.

Detailed Description Of The Preferred Embodiment

The Insurance Policy Backed Security ("IPBS") model is a unique application of securitization concepts applied to the P&C insurance industry. IPBS is a method by which insurance risks can be unbundled, and separated into multiple risk components. Each of these risk components can then be allocated the appropriate form of supporting capital .

The IPBS structure functions by taking defined pools of similar insurance risks and creating securities that match the underlying risk characteristics of the pools. Each pool of insurance business has three cash flows: i) the inflow of premiums, ii) the outflow of losses and expenses, and iii) the inflow of investment income between the period when the premiums are collected and the losses paid. In the insurance business, -the primary variables to these three cash flows are the amount of total losses and the timing of when they are paid. These variables require capital to support the risk. In the traditional insurance model, equity capital is allocated against all of the risks by using a broad ratio of premiums as a multiple of capital, typically in a ratio of 2:1.

Instead of allocating a broad ratio of equity capital to support a pool of insurance business, the IPBS model analyzes the individual risks associated with the pool and then matches the appropriate capital to each component. The benefit of this separation and matching of risks is a significant reduction in the overall cost of capital. The risks and their allocation can generally be separated into three components as follows:

1. Timing Risk - Timing risk affects the total amount of investment income generated on a pool of risks. It is the risk that losses will be paid out of a given pool faster than expected through actuarial analysis . This type of risk is the key component of the securitization. Capital to support this risk is best allocated in the form of a bond.

2. Mezzanine Underwriting Risk - This is the risk that the actual losses on a pool will be in excess of expected losses, but within one to two standard deviations of the targeted loss. These are the risks inherent in any pool of business that should average out over several years but are present in any given year. The appropriate capital against these risks is equity. 3. Unusual Underwriting Risk - This is the risk that the losses will exceed two standard deviations above the target loss ratio. These risks include catastrophes, changes in legislation, miswriting of the business, and unusual uncontemplated liabilities (e.g., asbestos) . These unusual risks are best placed with traditional aggregate and excess of loss reinsurance companies or other entities with large amounts of capital to absorb the infrequent loss. Other avenues supporting this risk can be catastrophe bonds or derivative contracts with large, credit quality financial institutions.

The IPBS securitization generally focuses on the expected amount of losses in a pool of insurance business. It is the management and allocation of the risk associated with the expected timing of loss payments. The methodology by which this is achieved is best illustrated through the analysis of the total cash flows of a pool of insurance premiums . Total cash flows can be segmented and quantified into any pool of insurance risks . These cash flows inherent in a pool of insurance premiums is as follows (example US$ 100 million auto liability insurance pool) :

Premiums collected US$ 100 mil.

Losses paid (75) mil.

Expenses paid (30) mil.

Investment income collected 11 mil.

Net income 6 mil .

While this example is for a US$ 100 million pool, statistical support of the predictability of the cash flows can generally be obtained with pools of risks of approximately US$ 25 million or higher.

Within these cash flows, the timing of the cash paid and collected is critical. Premiums are collected in the year the risks are written, in many cases at the inception date of the policy. Similarly, most of the expenses are paid at the time the policy is written. Losses, however, are paid as claims are incurred, then reported, adjusted, and ultimately paid. This claims settlement process, known as the "loss tail," will take several years before all claims for a pool of risks are ultimately paid. In standard auto liability, the loss tail is approximately eight years with half of the claims typically paid within the first two years . The final cash flow is the investment income earned by the insurance company between the period that premiums are collected and losses ultimately paid. This investment income is the key to the profitability of a pool of insurance business and is reported as income up to several years after the risks are initially written.

To illustrate, the incomes and expenses of the US$ 100 million auto liability pool of risks will have the following cash flows over its eight year life* :

„ , „ Losses Investment Cash

.fct-LU. dldllUe

Year 1 100. .000 (30, .000) (22.50) 3.825 51.325

Year 2 (15.00) 2.700 39.025

Year 3 (13.50) 1.845 27.370

Year 4 (7.50) 1.215 21.085

Year 5 (7.50) 0.765 14.350

Year 6 (3.75) 0.427 11.027

Year 7 (3.75) 0.203 7.48

Year 8 (1.50) 0.045 5.985

Totals 100, .000 (30, .000) (75.00) 10.985 5.985

* in millions

In this example, the net income of a pool of business is $5,985 million; however, for income statement purposes, this income is reflected incrementally several years after the initial risks were written.

FIG. 1 shows an embodiment of the IPBS structure of the present invention. The IPBS structure includes an insurance carrier 10, which is the company that originates and issues a pool of similar type of insurance risks, and a specialized reinsurance company 20. The specialized reinsurance company 20 assesses the pool of risks to determine whether to acquire the pool of risks from the insurance carrier 10. This assessment is based on certain criteria, such as the monetary amount of the pool of risks. If the pool of risks from the insurance carrier 10 meets the criteria, then the pool of risks is acquired by the specialized reinsurance company 20.

The specialized reinsurance company 20, which is preferably incorporated in Bermuda due to the favorable regulatory environment there, has one or more "protected cells" 30 -- where premiums from the pool of risks in the expected loss amount are placed. Each protected cell 30 is structured to be bankruptcy-remote, such as by being set up as a reinsurance trust. These loss reserves, fully funded, are pledged to the insurance carrier 10 for regulatory approval. In addition, the specialized reinsurance company 20 provides for the insurance carrier's 10 costs associated with the pool of risks.

The expected losses are analyzed by the specialized reinsurance company 20 for payment patterns and an expected amount of invested income to be generated. This investment income expectation is then present valued at a specific yield, such as a bond yield. If required by regulation and/or major rating agency (e.g., A.M. Best, Standard & Poor's, Moody' s, Fitch), the specialized reinsurance company 20 also calculates an over-collateralization amount for the expected losses whereby such amount may be included in the expected investment income calculation. Such over- collateralization amount will provide "equity" credit enhancement consistent with the risk/volatility associated with the probability distribution around the expected losses, typically measured by the standard deviation statistical function.

The resulting present value is then converted into securities and issued by the specialized reinsurance company 20. These securities are sold to securities purchasers 40, 41. Repayment of the securities is dependent on the investment income generated on the overall loss reserves as losses are paid. Securities can be issued in multiple levels, or tranches, that are tied in a "waterfall" or other common asset-backed allocations of repayment (e.g., CMO, CMBS, CDO/CBO/CLO) . As discussed above, the securities issued may contain amounts of over- collateralization for principal protection and to satisfy the regulatory requirements governing the specialized reinsurance company 20. Where applicable, the proceeds from the sale of securities in the amount of the over- collateralization amount are placed in the protected cell fund 30.

A significant benefit of the IPBS security is to allow an insurance carrier to remove the predicable insurance loss liabilities off its balance sheet. Achieving this removal dramatically reduces the amount of regulatory capital needed to support the business, frees up "excess capital" for other higher return opportunities and better aligns regulatory capital with the true "economic capital" requirements of the business. The aggregation of the largest component of funds in a pool of insurance business (i.e., expected losses), and placing bonds in the capital markets targeted to the key cash flow of the pool allows capital to be properly matched to the specific underlying risks of an insurance pool .

In addition, to the extent all or a portion of the proceeds from the issuance of the IPBS security are passed back to the insurance carrier in the form of additional ceding commission, the IPBS security allows an insurance carrier to recognize the income of a pool of business in the year it was written, as the insurance company has essentially sold the present value of the future investment income cash flows. The combination of the recognition of deferred income and the reduction in regulatory capital allows an insurance carrier to generate superior returns on equity on otherwise moderately priced insurance risk.

FIG. 2 shows an embodiment of a system 50 of the present invention. The system includes a computer 60 having a processor 65 and memory 70. The computer 60 has access to actuarial data 80 relating to the type of insurance risks. This access may be over a telecommunication link 85. The telecommunication link may be over a local area network ("LAN") or an Internet connection using a public switched telephone network or a cable network. Connection may also be provided by dedicated data lines, cellular, Personal Communication Systems ("PCS"), microwave, satellite networks, or other means known in the art .

A software program 90 preferably stored in the memory 70 controls the processor 65 to perform the following functions: calculating an over-collateralization amount needed, if any, for the expected losses; calculating investment income expected to be generated from the expected loss amount and the over-collateralization amount; and calculating the present value of the expected investment income. In addition, the software program 90 preferably will also calculate each of the above for expected losses increased by one or more standard deviations and the over-collateralization amount needed, if any.

The software program 90, or another software program, may also perform the following functions: determining the payments on loss claims based on the actuarial data 80 for both expected losses and for expected losses increased by one or more standard deviations; and determining quantities, prices and durations for the securities to be issued. A storage device, such as a database 95, preferably coupled to the computer 60 stores data relating to the securities; e.g., when the securities become due and information about purchasers/owners of the securities .

The following example, using a $100 million auto liability insurance pool, illustrates the IPBS model: 1. Insurer originates a $100 mil. pool of risks. Risks have acquisition expenses (e.g., commissions, processing) of $25 mil. Expected losses are $75 mil. 2. Insurer reinsures (cedes) 100% of the policy pool to specialized reinsurance company ("Spe Re") .

3. Spe Re pays $25 mil. commissions to the Insurer to cover Insurer acquisition costs and corporate operating expenses. $75 mil. expected loss balance invested and placed in a Spe Re protected cell.

4. The $75 mil. protected cell fund of expected losses is pledged to the Insurer to repay claims. The protected cell is categorized as "reinsurance trust" to adhere to regulatory requirements.

5. Estimation is made of expected payment of losses. For example, losses are expected to be paid over eight years, with 50% paid within first two years. Investment durations in the protected cell are matched accordingly. Durations may also be matched through a supplementing liquidity facility.

6. Spe Re estimates an additional $11.25 mil. is needed to over-collateralize the trust in accordance with Bermuda regulations (i.e., 15% of loss reserves).

7. Based on investment mix and duration, the $86.25 mil.

($75 mil. +11.25 mil.) pool is expected to generate $13.00 mil. of investment income on a declining basis over eight years. The present value of this investment income stream is $9.25 mil. This present value varies depending on the interest rate environment .

8. Spe Re purchases aggregate (and for business lines where applicable, excess of loss) reinsurance to cover losses over $85 mil. If actual losses are between $75 mil. and $85 mil., Spe Re has the option of i) absorbing the loss in the Spe Re general account, or ii) having the Insurer assume all or part of the exposure .

9. Spe Re issues a security for $20.50 mil. (9.25 mil. + 11.25 mil.). $11.25 mil. of the proceeds are placed in the protected cell trust as over-collateralization. The remainder is returned to the Spe Re general account .

Repayment of the security is exclusively dependent on the investment income generated by the trust and the release of over-collateralization as the losses are paid. The securities amortize, repaying principal and interest. The amortization will typically match the loss payment pattern of the underlying trust .

Those skilled in the art will recognize that the method and system of the present invention has other applications, and that the present invention is not limited to the representative examples disclosed herein. Moreover, the scope of the present invention covers conventionally known variations and modifications to the methods and system components described herein, as would be known by those skilled in the art.

Claims

What is claimed is: 1. A method for insurance policy backed securities, which comprises : acquiring at least one pool of similar type of insurance risks from at least one insurance carrier; providing for the insurance carrier's costs for said pool of risks; pledging to the insurance carrier for expected losses from payments on claims made against said pool of risks; placing said expected loss amount in a bankruptcy- remote protected cell fund; calculating over-collateralization amount needed, if any, for said expected losses; calculating investment income expected to be generated from said protected cell fund and said over- collateralization amount; calculating the present value of said expected investment income; issuing for sale securities in the amount of said present value of said expected investment income and said over-collateralization amount; placing proceeds from said sale of securities in the amount of said over-collateralization amount in said protected cell fund; paying securities owners as said securities become due ,- and paying for claims made against said pool of risks.

2. The method of claim 1, which further comprises determining said expected losses based on actuarial data for said type of insurance risks .

3. The method of claim 2, wherein said securities issued for sale have preselected periods before becoming due, said preselected periods corresponding to timing of said expected losses based on actuarial data.

4. The method of claim 1, wherein said over- collateralization amount is a predetermined percentage of said expected losses based on regulatory requirements.

5. The method of claim 1, wherein said over- collateralization amount is calculated at least one-half standard deviation above said expected losses .

6. The method of claim 1, which further comprises purchasing reinsurance coverage for any loss amount exceeding said expected loss amount.

7. The method of claim 1, which further comprises purchasing reinsurance coverage for any loss amount exceeding said expected loss amount plus a preselected percentage of said expected loss amount .

8. The method of claim 1, wherein said protected cell fund is a reinsurance trust.

9. The method of claim 1, wherein said type of insurance risks is one from the property and casualty lines of business .

10. The method of claim 1, wherein said insurance risks are insurance policies.

11. The method of claim 1, wherein said insurance risks are self-insured retentions.

12. The method of claim 1, which further comprises treating proceeds from said sale of securities as equity for purposes of calculating solvency or liquidity ratios that determine the amount of insurance premium that can be written by the issuer of said securities or an affiliated party of the issuer.

13. The method of claim 12, which further comprises discounting loss reserves associated with insurance risks granted in consideration for the insurance premium that can be written off.

14. A method for insurance policy backed securities, which comprises : setting up a specialized reinsurance business concern; assessing, by said specialized reinsurance concern, at least one pool of similar type of insurance risks from at least one insurance carrier to determine whether to acquire said pool of risks from the insurance carrier; acquiring, by said specialized reinsurance concern, said pool of risks from the insurance carrier if said assessment meets preselected criteria; placing, by said specialized reinsurance concern, premiums from said pool of risks in the amount of expected losses in a bankruptcy-remote protected cell fund, said expected losses being payments on claims made against said pool of risks determined based on actuarial data for said type of insurance risks; providing, by said specialized reinsurance concern, for the insurance carrier's costs associated with said pool of risks; pledging, by said specialized reinsurance concern of the amount in said protected cell fund, to the insurance carrier for said expected losses; calculating, by said specialized reinsurance concern, an over-collateralization amount needed, if any, for said expected losses; calculating, by said specialized reinsurance concern, investment income expected to be generated from said protected cell fund and said over-collateralization amount; calculating, by said specialized reinsurance concern, the present value of said expected investment income; issuing for sale, by said specialized reinsurance concern, securities in the amount of said present value of said expected investment income and said over- collateralization amount; placing, by said specialized reinsurance concern, proceeds from said sale of securities in the amount of said over-collateralization amount in said protected cell fund; paying, by said specialized reinsurance concern, securities owners as said securities become due; and paying, by said specialized reinsurance concern, for claims made against said pool of risks.

15. The method of claim 14, wherein said securities issued for sale have preselected periods before becoming due, said preselected periods corresponding to timing of said expected losses based on actuarial data.

16. The method of claim 14, wherein said over- collateralization amount is a predetermined percentage of said expected losses based on regulatory requirements.

17. The method of claim 14, wherein said over- collateralization amount is calculated at least one-half standard deviation above said expected losses.

18. The method of claim 14, which further comprises purchasing reinsurance coverage for any loss amount exceeding said expected loss amount .

19. The method of claim 14, which further comprises purchasing reinsurance coverage for any loss amount exceeding said expected loss amount plus a preselected percentage of said expected loss amount .

20. The method of claim 14, wherein said protected cell fund is a reinsurance trust.

21. The method of claim 14, wherein said type of insurance risks is one from the property and casualty line of business .

22. The method of claim 14, wherein one of said preselected criteria for determining whether to acquire said pool of risks is the monetary amount of said pool of risks .

23. The method of claim 14, wherein said insurance risks are insurance policies.

24. The method of claim 14, wherein said insurance risks are self-insured retentions.

25. A system for insurance policy backed securities for a pool of similar type of insurance risks, which comprises: a computer with a processor and memory, said computer having access to actuarial data for said type of insurance risks; a software program accessible to said processor and operating thereon, said software programmed to perform following functions : calculating an over-collateralization amount needed, if any, for expected losses from payments on claims made against said pool of insurance risks; calculating investment income expected to be generated from said expected loss amount and said over-collateralization amount; calculating the present value of said expected investment income; and a storage device electrically coupled to said computer, said storage device storing data relating to said securities .

26. The system of claim 25, wherein said storage device is a database.

27. The system of claim 25, wherein said stored data relating to said securities includes when said securities become due and information about owners of said securities.

28. The system of claim 25, wherein said access to actuarial data is over a telecommunication link.

29. The system of claim 25, wherein said software program is stored in said memory.

30. The system of claim 25, which further comprises a second software program, said second software programmed to utilize the actuarial data and said expected investment income to determine respective quantities, prices and durations for said securities.

31. The system of claim 30, wherein said second software program is part of said software program.

32. The system of claim 25, wherein said software is further programmed to calculate said over-collateralization amount at least one standard deviation from said expected losses .