Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Dual parametric / industry loss trigger ILW’s marketed


Artemis has learned that there are some industry-loss warranties (ILW’s) with a novel new structure currently being marketed to insurance-linked investors. The ILW’s feature a dual trigger, with a parametric and PCS industry loss both used.

These dual trigger parametric / industry loss based ILW’s are potentially a very good option for reinsurance or retrocession needs of ceding companies, as they can help to reduce basis risk (versus the industry loss) as well as potentially offer a rapid payout, if the parametric trigger is called into play.

The ILW’s, which are a structure designed by broker-dealer Rewire Holdings alongside risk modelling firm CoreLogic are being offered and syndicated to investors using the firms online Rewireconnect platform, Artemis understands.

The ILW’s feature on either/or use-case of the parametric or industry-loss trigger, meaning that only one trigger needs to be breached for the ILW’s to pay-out. There are three transactions being marketed, all of which cover U.S. hurricanes and named storms for the 2016 wind season, two being all U.S. focused, the third being Florida only.

The all U.S. wind ILW’s have $50 billion and $70 billion industry loss triggers, using PCS reported data, while the Florida wind ILW has a $40 billion PCS trigger. Each ILW has a comparable parametric index trigger, calculated by CoreLogic.

CoreLogic designed a parametric index to closely approximate the anticipated industry loss experience from specific sizes of hurricane. In this way if the industry loss misses the trigger, the parametric index may breach its trigger point still resulting in a payout, narrowing the industry basis risk, or indeed vice versa.

As these ILW’s are being structured and marketed by Rewire they could be structured as either a collateralised reinsurance swap or using a special purpose insurer (SPI), Artemis is told, likely depending on investors needs.

The ceding company or companies for the three dual trigger ILW’s are unknown. Rewire Holdings are said to be hoping that if the three ILW’s are successful it can generate more interest in these unique dual-trigger industry loss warranties.

By adding the second trigger it’s also possible that the pricing can be made keener for these ILW’s, perhaps making them even more attractive to primary insurers looking for hurricane season reinsurance, or for reinsurers looking for retrocession.

Artemis understands that the $40 billion Florida wind ILW has price guidance of 8% to 9%, the $50 billion U.S. wind ILW 8.5% to 9.5% and the $70 billion U.S. wind ILW 5.75% to 6.75%. All three ILW’s are looking for up to $5m of capacity per deal.

It will be interesting to see whether other dual-trigger ILW’s emerge, as the idea could be applicable to other catastrophe perils such as earthquake risk.

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