ILW prices fall for Florida wind, despite Irma loss creep

Industry loss warranty (ILW) pricing for Florida wind contracts and all natural perils has fallen in recent weeks, despite the fact that further ILW losses are expected after recent updates to insurance and reinsurance industry loss estimates for hurricane Irma.

It’s a further sign that pricing in general for property catastrophe reinsurance and retrocession are set to moderate, as long as the market remains free of additional major losses through the rest of this year and indicates that rate pressure is likely to be felt at the key January 2019 renewals.

Of course it’s also a further sign that the levels of capital and capacity seeking catastrophe risk allocation opportunities, such as to ILW’s exposed to U.S. hurricane risk, remain high and are likely rising further, as ILS market inflows and strong appetite from investors continues.

Artemis has seen pricing from a number of brokers for ILW’s that shows the indicative price declines that occurred at the end of June, just in advance of the July 1st 2018 reinsurance renewals.

Pricing for Florida wind only ILW’s has fallen by as much as 2% for the riskiest and lowest trigger points, such as $5 billion and $10 billion, it appears, while at the same time pricing for more remote industry loss triggers have declined by anywhere from 1.5% to 0.5%, depending on the view of brokers behind the sheets.

U.S. wind ILW’s have also seen some price falls, likely a result of the reduced Florida wind ILW pricing, as too have some all natural peril contract indicative prices as well.

The reduced pricing for Florida wind ILW contracts comes against the backdrop of continued hurricane Irma loss creep, which as we now know has also put some more ILW contracts at risk as the industry loss estimates rose.

ILS funds, collateralized reinsurance and retrocession vehicles as well as traditional re/insurers have been hardening their reserves for Irma as a result, but this doesn’t appear to have dampened the appetite for more Florida wind risk, hence the falling prices.