PERILS industry loss triggers used in $14.2bn of risk transfer to-date

Industry loss triggers continue to play a vital role in risk transfer transactions, such as catastrophe bonds, industry loss warrants (ILW’s) and other private ILS or collateralized reinsurance arrangements, and now PERILS AG has reached $14.2 billion of limit placed using its triggers and data.

Last year, PERILS reported a dip in the volume of reinsurance limits at risk that had used its triggers and industry loss data or indices, as the amount of PERILS-based limits at risk fell to $2.9 billion, with the company saying that industry loss triggers were facing stiff competition from indemnity coverage at the time.

But now the industry loss trigger market has seen a bit of a resurgence, with ILW activity a little higher in 2017 and industry loss catastrophe bonds also making a bit of a come back in recent months, with some large transactions coming to market, a handful of which had European exposures and used PERILS data.

PERILS said that there were $3.3 billion of PERILS-based limits at risk at the 31st March 2017, with over 90% using structured triggers and a weighted index, while over 80% of these were used for retrocessional reinsurance purposes.

So over the last year PERILS-based limits at risk have risen by 14%, from the $2.9bn reported a year earlier, reflecting the uptick in usage of industry loss triggers and also an increasing use of retrocession, some which is being driven by ILS fund managers need for hedging.

Of the $3.3 billion of limits at risk which are PERILS trigger based, 75% are from catastrophe bond transactions, while the remaining 25% are from private ILS and reinsurance risk transfer arrangements.

PERILS-based limits at risk 2010 to 2017 (per end March 2017)

Of the $3.3 billion of PERILS-based limits at risk, $3.273 billion are exposed to European Windstorm risks, $1.354 billion are exposed to Australian Natural Perils, and $257 million are based on Turkish Earthquake risk.

The industry loss trigger, like the parametric, continues to regain some popularity in recent months, as insurance and reinsurance firms begin to appreciate the need for hedging and how these structures fit into their overall risk transfer programs, while ILS fund managers also begin to turn to them for their own exposure management needs.

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