Liquid insurance contracts

• US 7,580,872 B2
• Filed: 10/05/2001
• Issued: 08/25/2009
• Est. Priority Date: 10/06/2000
• Status: Active Grant

• Current Assignee: Extraordinary Re Holdings, Inc.
• Original Assignee: LIC Development, LLC
• Inventors: Whitworth, Brian L., Van Slyke, Oakley E.
• Primary Examiner(s): Cheung; Mary
• Application Number:
  US09/971,492
• Publication Number:
  US 20020042770A1
• Time in Patent Office: 2,881 Days
• Field of Search: 705/36.R, 705/36.T, 705 35- 37, 705 39- 40, 705/4, 902/41, 235/1.R
• US Class Current: 705/35
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A liquid insurance contract (LIC) comprises a security which is traded or tradable and which has cash flows to the issuer based upon a liability whose exact value is unknown at the time of issuance. A method for creating and trading these LICs, as well as other financial products derived from LICs, may include any of the following steps: writing at least one LIC; preparing regulatory filings for at least two LICs; issuing the two LICs; preparing regulatory filings for a financial product which includes at least one detachable LIC provision; issuing the financial product; creating at least one underwriter as a closed end fund owned by a parent company; placing ownership of at least a portion of an issue of the financial product in an underwriter owned by a parent company; spinning off the underwriter from the parent company using at least one stock dividend; trading shares of the underwriter; reporting information on trades and positions of the underwriter; and valuing the underwriter using analytic modeling, sensitivity testing, portfolio analysis, and/or investment analysis.

Claims

1. A business method for unbundling the sale, administration, risk transfer and suretyship of an insurance policy, comprising the steps of:

selling the insurance policy by an insuring company to an insured;

contracting with a service provider to service the insurance policy;

issuing a security using a computer or computer network by a security issuing company other than the insuring company that obtains future cash payments in consideration for payments under the insurance policy; and

providing a surety guarantee by other than the issuing company and the insuring company, for the payment by the issuing company of the cash payments of the security.

2. The business method recited in claim 1 further comprising the step of trading shares of the security issuing company on an exchange.

3. The business method recited in claim 2 wherein the security is a Liquid Insurance Contract.

4. The business method recited in claim 1 wherein the issuing step and the providing step occur without the participation of the insured.

5. The business method recited in claim 1, further comprising trading the security on an exchange.

6. The business method recited in claim 5, wherein the step of trading the security on an exchange further comprises trading the security by qualified underwriters.

7. The business method recited in claim 1, further comprising:

creating the insurance policy from a previously existing policy form by deleting an exclusion.

8. The business method recited in claim 1, further comprising:

creating the insurance policy from a previously existing policy form by adding coverage.

9. The business method recited in claim 1, further comprising:

creating a new policy form.

10. The business method recited in claim 1, wherein providing the surety guarantee comprises issuing a performance bond by a surety company.

11. The business method recited in claim 1, wherein providing the surety guarantee comprises issuing a financial guarantee by a financial guarantee company.

12. A business method for unbundling different elements of an insurance policy, comprising the steps of:

selling the insurance policy by an insuring company to an insured;

engaging a service provider to service the insurance policy;

issuing a security using a computer or computer network by a security issuing company other than the insuring company that obtains future payments in consideration for payments under the insurance policy; and

providing a surety guarantee by other than the issuing company and the insuring company, for the payment by the issuing company of at least a portion of the future payments of the security.

13. The business method recited in claim 12, wherein providing the surety guarantee comprises issuing a performance bond by a surety company.

14. The business method recited in claim 12, wherein providing the surety guarantee comprises issuing a financial guarantee by a financial guarantee company.

15. The business method recited in claim 12, wherein the security is a LIC.

16. The business method recited in claim 12, wherein the issuing step occurs without the participation of the insured.

17. The business method recited in claim 12, wherein the providing step occurs without the participation of the insured.

18. The business method recited in claim 12, further comprising trading the security on an exchange.

19. The business method recited in claim 18, wherein the step of trading the security on an exchange further comprises trading the security by qualified underwriters.

20. The business method recited in claim 12, wherein the future payments comprise cash.

21. The business method recited in claim 12, further comprising:

creating the insurance policy from a previously existing policy form by deleting an exclusion.

22. The business method recited in claim 12, further comprising:

creating the insurance policy from a previously existing policy form by adding coverage.

23. The business method recited in claim 12, further comprising:

creating a new policy form.

24. A business method for unbundling non-financial functions of a risk transfer contract from a financial risk, comprising the steps of:

creating the contract to transfer risk from a first party to a second party;

contracting with a third party for the non-financial functions of the risk transfer contract;

issuing a security using a computer or computer network by a security issuing company other than the second party that secures future payments for the financial risk; and

providing a surety guarantee by other than the first party and the second party for the payment by the issuing company of the future payments called for by the risk transfer contract.

25. The business method recited in claim 24, wherein the security is a Liquid Insurance Contract.

26. The business method recited in claim 24, wherein the issuing step occurs without participation of the first party.

27. The business method recited in claim 24, wherein the providing step occurs without the participation of the first party.

28. The business method recited in claim 24, further comprising trading the security on an exchange.

29. The business method recited in claim 28, wherein the step of trading the security on an exchange further comprises trading the security by qualified underwriters.

30. The business method recited in claim 24, wherein the creating the contract to transfer risk from the first party to the second party comprises creating coverage for catastrophic loss.

31. The business method recited in claim 24, wherein:

creating the contract to transfer risk from the first party to the second party comprises deleting an exclusion from a previously existing risk transfer contract.

32. The business method recited in claim 24, wherein:

creating the contract to transfer risk from the first party to the second party comprises adding coverage to a previously existing risk transfer contract.

33. The business method recited in claim 24, wherein:

creating the contract to transfer risk from the first party to the second party comprises drafting a new risk transfer contract.

34. The business method recited in claim 24, wherein the future payments comprise cash.

35. The business method recited in claim 24, wherein providing the surety guarantee comprises issuing a performance bond by a surety company.

36. The business method recited in claim 24, wherein providing the surety guarantee comprises issuing a financial guarantee by a financial guarantee company.

37. The method of claim 24, further comprising the steps of:

listing the security on a first exchange;

operating the first exchange;

operating a second exchange; and

permitting as traders on the first exchange underwriters which are listed on the second exchange.

38. The method of claim 37, further comprising:

enabling investors to trade on the second exchange.

39. The method of claim 37, further comprising the step of:

operating the first exchange as a futures exchange.

40. The method of claim 37, further comprising the step of:

operating the first exchange as exempt from regulations that apply to a futures exchange.

41. The method of claim 37, further comprising:

operating the second exchange as a stock exchange.

42. The method of claim 37, further comprising:

requiring a surety guarantee for each trader on the first exchange.

43. The method of claim 42, wherein requiring the surety guarantee comprises issuing a performance bond by a surety company.

44. The method of claim 42, wherein requiring the surety guarantee comprises issuing a financial guarantee by a financial guarantee company.

45. The method of claim 42, wherein effects of counterparty risk on pricing of the security are negligible.

46. The method of claim 37, wherein the step of permitting as the traders on the first exchange comprises excluding as the traders on the first exchange any entities not listed on the second exchange.

47. The method of claim 37, wherein the step of permitting as the traders on the second exchange comprises permitting only accredited investors.

48. The method of claim 37, wherein the step of permitting as the traders on the second exchange comprises permitting at least one business controlled, directly or indirectly, by a reinsurance company.