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ILW pricing stays relatively flat since recent catastrophe losses


Pricing for industry-loss warranty (ILW) backed retrocessional reinsurance protection has not shifted significantly since the aggregation of recent catastrophe loss events, with brokers still pitching capacity at the same rates as prior to the wildfires, sources have told us.

Since the California wildfires are now assumed to be a $15 billion plus industry loss and other events such as Japanese typhoon Jebi and hurricane Michael are expected to see their costs escalate, the focus for the renewals has moved to one of expected rate stability (at least) and the potential for price increases.

But so far our sources tell us that industry-loss warranty (ILW) pricing has remained flat through the recent weeks of market disruption (perhaps dislocation) and that there are transactions being marketed at flat levels, while another broker told us that there is flat pricing on some firm quotes for the renewals as well.

Broker pricing tables for ILW coverage show the same pricing as they did two or three months ago, before the annual catastrophe loss expectations had increased and the awareness of a capital crunch due to trapped collateral in the ILS sector spread.

As we explained last week, further ILW losses are anticipated due to typhoon Jebi’s impacts in Japan and the rising industry loss estimate there, as well as some nervousness that hurricane Michael could impact some ILW’s, while second event ILW’s could also be at-risk thanks to the California wildfires as well.

It seems these losses and the prospect that there could be more to come haven’t been sufficient to increase the price requirements for ILW capacity and we’re told there are markets pushing ILW’s at very competitive pricing for the January 2019 renewals still.

On the other hand, we’re also told that there are some markets that had been providing ILW capacity that are not providing quotes at the moment, preferring to see how the January renewals pan out before committing to any pricing.

It’s likely that brokers do not want to scare off potential protection buyers, by visibly hiking rates too soon. So it could be that an ILW pricing correction to factor in recent losses becomes more evident after 1/1.

Of course, the fact some renewals are still waiting for quotes to start coming in suggests markets are waiting to see where pricing may move to and the nervous wait means pricing is stuck, or static for now. It will be interesting to see where the pricing marks for ILW’s sit come January.

We’ve also heard of a traditional market that is offering very competitive ILW capacity at this time, a player that is clearly looking to capitalise on the capital crunch among some ILS markets.

Read more of our coverage related to the upcoming reinsurance renewals.

Also read:

Aggregate ILS returns questioned after recent losses.

Cat bond sell off adding mark-to-market pressure.

QBE avoids rate hikes with early renewal, increases reinsurance limit.

More discerning, less rush to commit capital – healthy ILS trends for 2019.

Lloyd’s renewals said in disarray. Late renewals may come back to bite syndicates.

Post-loss fundraising set to be more challenging for (some) ILS funds.

Traditional reinsurers targeting retro opportunities at renewals.

Reinsurance renewals may hold “surprise to the upside” – Twelve Capital.

2018 is the real test for ILS investors: Lohmann, Secquaero.

Cat bond liquidity benefits evident, as ILS funds sell to free up capital.

Some ILS funds struggle to even renew core portfolios, let alone grow.

Property catastrophe rates to rise at 1/1 & beyond: Everest Re management.

One sidecar pulled on lack of investor appetite, others questioned on terms.

Capital availability & losses to drive reinsurance rates at 1/1 renewals.

Retro losses could drive price increases in 2019: Goldman Sachs.

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