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Original Risk: A Society for Change Agents

Industry loss warranty market would benefit from increased capacity


Last week broker Guy Carpenter published a report looking at the recent 1st June renewals and the state of the reinsurance industry. They concluded that despite the heavy catastrophe toll from the first half of the year, reinsurers are generlly well capitalised and the reinsurance industry as a whole enters the hurricane season with excess capital.

Guy Carpenter estimate that there is roughly $165 billion to $175 billion in dedicated reinsurance sector capital with roughly $10 billion in excess reinsurance capital available.

The report, which you can view on Guy Carpenters blog here, discusses the state of the industry loss warranty (ILW) market after a challenging start to the year. They note that the ILW market has hardened in the wake of heavy catastrophe losses and the Risk Management Solutions hurricane model change. However they say new capacity may enter the market which could help to stabilise prices. They say that a new influx of capital would be timely as the market is deploying capacity more carefully for first loss covers in the U.S. Worldwide ILW structures would also benefit from increased capacity in the market, they added.

The industry loss warranty market is performing as expected though after a catastrophic first half to the year. Guy Carpenter note that significant ILW limits have been triggered in 2010 and 2011 and say that this perhaps demonstrates the continued value of the product. They also note that there may be more capacity available to the market for ILW covers structured on a frequency basis rather than on the typical first event covers which are more usually sold.

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