ILW market attention shifting to mid-year hedges and Florida: Willis Re

The industry loss warranty (ILW) market saw pricing spike to levels aligned with the pre-mid year 2020 market, as attention shifts to arranging hedges and covering Florida exposures, broker Willis Re has said.

The industry loss warranty (ILW) market, which is predominantly a source of capital market backed retrocessional reinsurance and often also used by insurance-linked securities (ILS) funds as hedging instruments, has been a challenging one to predict over the last year.

Rates for ILW coverage have risen, in-line with retrocessional and reinsurance capacity, but fluctuated throughout the year, with supply of capital a factor.

Around a year ago, ILW rates spiked somewhat as the focus typically shifts to balancing portfolios of risk in advance of the important mid-year renewals.

It appears the same is true in 2021, as reinsurance broker Willis Re reported that, around the April renewals, the ILW market saw pricing “in line with the pre mid-year 2020 spike.”

Capacity to support ILW coverage has mostly been in demand around the more remote end of the risk curve, Willis Re explained, with cover also sought for county and state weighted ILW hedges.

We’re told there has been some added focus on ILW hedging among parties expecting to face impacts from the recent winter storms and freezing weather in the US, while for others, including ILS funds, ILW pricing and hedges tend to be sought around this time of year once they have a clearer view of their portfolios including April renewed business.

Now, Willis Re notes that, for the ILW market, attentions are shifting towards these hedges for the mid-year portfolio, likely some in preparation for the renewals, while others may be focused on hedges they want to buy once that portfolios construction is better understood.

In addition, attentions are also shifting to Florida exposures as well, the broker said, which with the hurricane season now only two full months off its official start is no surprise.

The ILW structure continues to play an important role in reinsurance, as an efficient way to access capacity for specific industry-level return periods, while enabling peak concentrations to be offset somewhat.