Interest in back-up reinsurance rises on Irma, live cat still quiet (so far)

Broker sources told Artemis that they are seeing increasing interest in so-called back-up reinsurance covers, or products that can provide added protection until the end of the year, all a reflection of the hurricane Irma threat following Harvey so closely, but still live cat trading activity remains light.

The hurricane Irma live cat market remains focused on triggers above $40 billion, as the expectation remains that should the major storm strike the United States, particularly Florida, then the eventual insurance and reinsurance industry loss could be high.

With hurricane Irma coming just after hurricane Harvey, which is assumed as a private insurance and reinsurance market loss of over $10 billion, there are re/insurers now seeking back-up protection, either to replace the possible erosion of their reinsurance or retrocession, or simply to help them get through to the end of the year without eroding the program completely.

These back-up or top-up reinsurance coverages are commonly bought when there has been a period of high catastrophe activity. As a result they haven’t been seen in the market very often since as long ago as 2005, when hurricanes Katrina, Rita and Wilma all struck the United States.

Meanwhile, the market for live cat industry loss warrants (ILW’s) which was focused on triggers of $40 billion or higher, has now shifted higher with some interest seen at $70 billion, but with a broad spread between bids and offers, we’re told. Hence the volume of live cat ILW’s traded on hurricane Irma’s approach remains low, we understand.

This reflects the rising threat to Florida and some protection buyers expectations that a major industry loss could be on the horizon.

One source said small trades at $70 billion triggers were seen yesterday, but other sources doubted the veracity of these reports. However it shows the increasing fear of loss and potential for a major industry loss event. A $70 billion trigger prices around 23% to 25% we understand.

Sellers are being relatively aggressive in their pricing, which so far has kept deal volume light, as buyers want greater certainty that there will be a meaningful loss before they look to acquire coverage.

We understand that interest in parametric coverage is also rising, as this can often be much more targeted through use of wind speed anemometers and real recorded weather data.

This morning it does look like activity will pick up, as inquiries for coverage are coming in to brokers faster now. But still, given some uncertainty still exists over the path of hurricane Irma and its eventual impact, the spreads are wide and executions few and far between, our sources said.

However, with Irma approaching the U.S. and Florida each day and the uncertainty gradually becoming lower, as it naturally does, we could still see a significant burst of live cat trading activity in the coming days, if hurricane Irma continues to bear down on South Florida with forecasts suggesting a landfall in a highly populated area, as the latest tracks show with Miami currently in the path.

Hurricane Irma tracking map, forecast model runs and wind speed intensity predictions.

Also read:

– Billions of catastrophe bonds at risk from Hurricane Irma.

– CCRIF to pay $15.6m on Hurricane Irma impact to Leeward Islands.

– Hurricane Irma track aims at Miami, a $131bn realistic disaster scenario.

– Blue Capital halts ILS fund buy-backs as hurricane Irma approaches.

– Cat bond trading slight on Irma, Kilimanjaro II Re trades down.

– Hurricane Irma leaves trail of destruction, Florida still in its path.

– Hurricane Harvey re/insurance industry loss over $10bn: AIR.

– Irma & Harvey losses combined may still just be an earnings event: Morgan Stanley.

– Citrus Re 2017 cat bond notes trade down 50% on hurricane Irma threat.

– Hurricane Irma live cat activity focused on $40bn+ loss, pricing uncertain.

– Hurricane Irma landfall in Florida would hit reinsurers hard: KBW.

– Hurricane Irma a potential U.S. (Florida) threat this weekend.