The recent volatility in the world's stock markets has several potential positive and negative implications for efforts to securitize risk.

"I think there are two implications, one good, one bad," said Morton N. Lane, president of Sedgwick Lane Financial L.L.C. in Chicago.

"First and foremost, there's a Japanese earthquake bond issue that's about to close, and the extent to which that looks attractive against higher yield or emerging market bonds may change if (higher yield) markets back up," Mr. Lane said.

Yields on catastrophe bonds brought to market this year have proved attractive to investors compared with other opportunities.

"As long as spreads remain meaningful to investors-the USAA transaction the spread was very rich and it was oversubscribed-as long as spreads are worthy of jumping in, I don't see the volatility of the past couple days impacting that," said Brian W. Kawamoto, managing director at Aon Worldwide Resources in San Francisco.

Andrew J. Kaiser, a vp at Goldman Sachs & Co. in New York, noted that yield spreads for classes such as emerging market debt have widened recently, however, in part because of the recent volatility, but also because of the perception of an increased risk of defaults, even though it's not yet clear whether that risk actually exists.

A positive implication of the recent market volatility is that it underscores the value of catastrophe-linked securities as an asset uncorrelated with others in an investor's portfolio, Mr. Lane pointed out.

"One of the arguments for an investment manager to buy these assets is that they are not a correlated asset with whatever else is going on in the world," Mr. Lane said.

While recent activities in the Hong Kong stock market might have had an impact on investors' bond holdings as well, "anybody that owned any of the insurance securitization would have seen no negative effect on the value of those investments," Mr. Lane said. "What better illustration could you get?"

But Mr. Kaiser was cautious of overstating the possibility that catastrophe risk's attraction as a portfolio volatility damper would make it even more appealing to investors in the present market climate.

"If emerging market debt spreads double. . .that could impact insurance-linked securities," he said.

And he noted, "In many volatile markets, many instruments that have very little correlation in terms of expected loss do tend to perform in somewhat of a correlated basis."

While with cat risk "the long-term predictability is relatively constant," Mr. Kaiser said it's not yet clear whether the performance of catastrophe-linked securities will correlate with other asset classes in the current volatile atmosphere, because there isn't a critical mass of natural hazard securities in the market to gauge how they will perform.

"But the point that investors need to understand about insurance-linked securities is that the risk is relatively constant," Mr. Kaiser said.

One other possible implication Mr. Kawamoto sees regards the integrated risk approaches some insurers are promoting, which embed such risks as currency risk in a larger insurance contract covering more traditional insured risks.

The recent market events and the pounding some Asian currencies are taking "would certainly give underwriters pause as to how they price that (currency) risk," Mr. Kawamoto said.

"The other thing is what about the volatility's relation to risk in general?" Mr. Kawamoto asked.

Many companies have been looking for ways to lay off emerging market credit exposures, he noted, and the recent volatility in the Asian markets and the collapse of some Asian currencies might make it necessary to revisit some of those efforts.

"I think big blue-chip companies in the good times are looking at a number of things that may enable them to soften the blow of an adverse event," Mr. Kawamoto said.