ILW pricing up as much as 30% in wake of hurricanes

Rates-on-line for industry loss warranties (ILW’s) have increased by as much as 30% following the third-quarter catastrophe losses suffered by the industry, perhaps giving a glimpse of where retrocessional reinsurance could move at the forthcoming January renewals.

Artemis has analysed data from broker pricing sheets and indicative pricing received from some markets, which suggests that some ILW protection sellers are looking (or hoping) for rate increases in the region of +30% for some of the riskiest ILW contracts, down to +10% for more remote industry loss triggers.

Looking at ILW indicative prices from before the hurricanes and from the last week or so, it’s clear that the brokers are constructing their pricing grids to allow for expected rate increases following the losses.

We’ve seen a $20 billion trigger U.S. all natural peril ILW price that has risen by around 32% since hurricane Harvey struck, followed by Irma, Maria and other recent catastrophe losses.

The rate-on-line for a $20 billion trigger U.S. wind ILW has increased by 25%, while even a low trigger U.S. earthquake ILS price has risen by as much as 15%, reflecting the desire of the capacity providers to begin to recoup some of the their losses across more than just the directly loss-impacted lines of cover.

Price increases are lower as you move to the more remote triggers, but even a $50 billion all natural perils ILW will likely cost buyers between 15% and 20% more than before the hurricanes, while a $50 billion U.S. wind ILW looks likely to see its rate-on-line increase by 18% or more.

Not all brokers are the same though and we’ve seen pricing grids that suggest lower rate increases, ranging from just 10% for the very remote triggers to 15% for the more in-the-money U.S. wind ILW’s.

Overall our pricing analysis suggests that protection buyers are being shown ILW pricing indications that all natural perils cover will rise by an average of 25%, U.S. wind coverage by an average of 23% and U.S. quake is mixed, with some up averaging around 10% but other pricing showing this peril relatively flat.

We’re told that these could be underestimating the price increases, particularly for the lower trigger level, riskier ILW contracts. Once negotiations and ILW buying begins in earnest, it has been relatively quiet since the hurricanes, a clearer picture should emerge.

These prices give a reasonable indication of where some collateralized and traditional retrocessional reinsurance pricing may go as well, as that and the ILW market are among the most loss affected from the recent hurricanes.

Interestingly though, the price increases seen on ILW rate indications are significantly higher than we’re told industry-loss trigger catastrophe bonds are likely to experience.

This is partly due to the fact the industry-loss cat bonds are more remote risks, but also due to the different capital providers behind the cat bond and ILW market, so again ILW’s look set to increase more as the capacity providers there took more losses.

Of course, whether anyone can secure this level of price increase when binding of new ILW coverage begins around the renewals remains to be seen.

Join us in New York in February 2018 for our next ILS conference