ILW pricing rises after renewals for US, EU & JP coverage triggers

Indicative pricing for industry-loss warranty (ILW) structured retrocessional reinsurance protection has risen for U.S. and European wind and storm related perils, with some relatively significant increases seen at certain trigger levels.

These recent increases to indicative ILS pricing and rates-on-line have only been applied to certain broker pricing sheets after the January renewals, presumably to better reflect the true pricing of ILW capacity in the market.

Prior to that, broker pricing sheets had stayed relatively static right through much of 2019 Given the real rates-on-line for industry loss based reinsurance and retro capacity had moved higher during the year, according to sources, this meant the indicative price marks on sheets had actually moved further away from realistic representations of rates that protection buyers could expect to pay.

Finally prices have moved and so caught up somewhat with real market pricing, which means these broker pricing sheets are providing a better indication of real capacity prices for clients and potential buyers of ILW protection.

Rates have increased the most for loss affected regions and also at some lower trigger levels in areas that haven’t faced a major catastrophe for some years.

Interestingly though, U.S wind ILW’s covering the eastern and northeastern seaboard have seen some of the steepest price increases, with indicative rates rising 20% to 30% (slightly higher in some cases) for the most common trigger points such as $10 billion, $15 billion and $20 billion.

Florida wind ILW rates had moved after the 2017 hurricanes and the only recent increase in indicative pricing seems to be for the lowest level triggers, of $5 billion and $10 billion, where rates have increased as much as 2%.

However, for Florida our sources tell us reality is different to the broker pricing sheets and markets providing ILW capacity say increases will be higher than the sheets suggest.

Rates have also risen for ILW’s covering the entire U.S. coastline against named storm events, with trigger points such as $20 billion and $30 billion seeing rates increasing 3% to 10%, depending which set of pricing is analysed.

Diversifying perils in the U.S. such as earthquake risk have not seen any increases at this time, but all natural peril ILW capacity looks set to demand higher rates as well.

Some of the lower U.S. all natural peril trigger points have seen indicative rates increase by as much as 10%, while the higher trigger points haven’t moved at this time.

European windstorm ILW rates have risen as well at the lower trigger levels, with 10% plus increases seen for indicative rates at $5 billion and $10 billion industry loss triggers in some indicative pricing.

Japanese wind triggers have also risen, although not as much as you might have thought.

On pricing sheets where Japan wind is featured, as not all of them do for some reason, we’ve seen some increases in recent weeks of around 10% or so.

But again, the reality is likely to be a little different, as reinsurance and retrocessional capacity for Japanese wind risks is expected to rise more significantly in price at the April renewals, which should also be reflected in ILW capacity pricing. We’re told some quotes for Japanese ILW’s are coming in significantly higher, with increases of around 30% being discussed.

As ever, these broker pricing sheets are a useful indicator of appetite and price, but are also rarely reflective of market realities as brokers (of course) need to stimulate and encourage deal flow.

The fact some of the broker pricing sheet pricing didn’t move before the January renewals, but did almost immediately after is perhaps telling as well.