PERILS-based limits at risk drop 14% to $3.7bn on slow ILW market

PERILS AG, the Swiss-based provider of industry-wide European catastrophe insurance industry loss data and indices, has seen limits-at-risk using its data decline by approximately 14% to $3.7 billion, as industry loss warranty (ILW) activity slowed.

PERILS-based limits-at-risk as of the 1st September 2014 sat at $3.7 billion, which is 14% down from the $4.3 billion seen a year earlier. As well as the slower ILW market, which has seen a difficult and weaker trading environment through the first half of this year, the number of European windstorm catastrophe bonds has also been low with just four cat bonds in the last year exposed to the peril despite the markets brisk issuance.

However, despite the slower year for industry loss based risk transfer for European windstorms and perils covered by PERILS AG, the company has reached an impressive milestone, with a huge $10 billion of PERILS-based risk capital having used its industry loss index data since its launch. This total consists of more than 140 individual transactions, which shows the demand for insurance industry loss based risk transfer which PERILS has been responding to.

Despite having a little quieter year in terms of transactional use of its data, PERILS has been kept extremely busy as an organisation with the most active European windstorm season in its existence in 2013-2014 helping it to augment its database with many new events and data points.

The brisk windstorm season, resulting in a number of events that PERILS reported on, provided it with valuable new data points for model testing and model calibration. As a result, these benefits amongst others contribute to an improved historical data store and better quantification of European windstorm risk.

Luzi Hitz, CEO of PERILS, explained; “Our industry exposure and loss data have become an integral part of the industry’s ability to understand and manage Cat risk. Our data are now used for a wide range of activities, from catastrophe risk model validation and exposure benchmarking, to basis risk analysis and triggers in industry-loss-based risk transfer products, as well as for event definition. This is precisely what we set out to achieve when we launched PERILS five years ago.”

Eduard Held, Head of Products at PERILS, added; “The success of PERILS owes much to the willingness of insurers to provide us with their insured exposure and loss data. Over 100 insurers currently contribute to our industry database in all 12 countries in which we operate. This enables us to provide high-quality industry data per CRESTA zone, spanning both property occupancy type and coverage type, and contributes to an ever greater insight into European Cat risk.”

PERILS is the only provider of a robust methodology based industry loss index for European catastrophe events, which leads us to believe that it will see continued growth in its limits at risk, despite the dip this year. The challenging reinsurance market environment has likely made pricing of traditional reinsurance softer, for the risks PERILS covers, that the industry loss and capital markets based solutions its data facilitates may not have been so attractive to cedents in the last year of this year.