First PCS triggered Japan ILW brokered by Willis Re

Property Claim Services (PCS) industry loss data aggregation and index reporting services for non-marine catastrophe losses in Japan has already been used for an industry loss warranty (ILW).

We’ve learned that reinsurance broker Willis Re has become the first to structure and trade an industry loss triggered retrocessional risk transfer instrument using the still relatively new PCS Japan index as a trigger.

PCS launched its Japan focused industry loss data and index service in January of this year, as it responded to demand from its client base following the impacts of major catastrophe losses in 2018.

It’s the first PCS product in the Asian region and actually the first official third-party provided industry loss index for the region ever.

In the past ILW’s have been structured using triggers based on research teams estimates of market wide catastrophe and man-made event losses from reinsurance firms Munich Re and Swiss Re.

But these have never been official providers of industry loss data, for use within the triggers of traditional or alternative reinsurance and retrocession transactions.

Hence the launch of PCS Japan, as a third-party provider, has been welcomed by the market and it’s not surprising that, following the heavy catastrophe loss year of 2018, we now learn that the service has already been used within an ILW trigger for Japanese coverage.

After learning about the first PCS Japan ILW, we spoke with Co-Head of Property Claim Services (PCS) Tom Johansmeyer to find out more.

Johansmeyer explained, “PCS Japan came to market because our clients wanted us to solve a specific need for them. Following the three major catastrophe events in Japan last year, it was clear that traditional approaches to ILWs would no longer be sufficient, particularly given how much ILW limit is exposed to Japan. For us to see the first ILW triggered on PCS Japan reinforces to us that our efforts aligned with the specific needs of the market. We’re proud that the market chose PCS to help improve the ILW market. As the only independent loss reporting agent, our mission is to help open up more regions for the global reinsurance community. There’s no substitute for PCS’s independence, client focus, work ethic, and commitment to the global reinsurance community.

“With the addition of PCS Japan to our industry loss index portfolio, we’ve expanded not only our global coverage, but the scope of support we can provide to the market. Following the evident shortcomings in Japan ILWs with other triggers, we hope to help more clients make the change to our independent and reliable alternative, which we believe could grow our share of industry loss index-exposed even further. In addition to supporting clients already in the Japan ILW space, we believe that our loss index could help bring more original risk to market, resulting in new growth opportunities for worldwide cedants and markets.

“Willis Re’s efforts to be first in this space have resulted in a groundbreaking ILW transaction that we believe will pave the way for accelerated market expansion.”

This first use of the PCS industry loss trigger for Japan could help to stimulate further ILW issuance in that region. It’s also possible that the trigger may be used in future as a catastrophe bond trigger for retrocession for major reinsurance firms with significant exposure to the Japanese property marketplace.

The global and line of business expansion of PCS’ index services could prove a valuable opportunity for parent Verisk.

These transactions embed PCS services in global re/insurance risk management and ultimately this can help raise awareness of Verisk’s broader service offering as well.

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