Purchasing of retrocessional reinsurance coverage in industry-loss warranty (ILW) form was seen to show a “material increase” around the mid-year renewal season, according to broker Aon.
In the companies’ latest reinsurance market report, Aon said that the industry loss warranty (ILW) market is one area where a lot of activity has been seen in recent weeks.
In particular, the broker believes that this has been driven by the reduction in supply of capacity for ultimate net loss coverage, which is likely to be largely on the retro side of the market where ILW’s are most typically purchased.
Aon said that its broking teams saw a “material increase” year-on-year for ILW structures such as a wind and all named perils coverage across the U.S. 50 states.
This all named perils and U.S wind type industry loss coverage tends to have been bought at trigger points at the $50 billion and higher levels.
Demand for this ILW product has been seen on both an occurrence and aggregate basis at these kinds of industry loss trigger levels, Aon further explained.
In terms of the timing to market, Aon said it was varied, but the broker also noted that a number of cedents entered the market to purchase ILW limit very early on, around April for the June renewals cycle.
In some cases this was a lot earlier than in the prior year, with firm order terms received by the beginning of April for select June placements.
For a Florida first event ILW cover, which is another popular area of industry loss trigger trading, interest was much lower down, at triggers of $20 billion and below.
In addition, Aon notes that there has also been a spike in ILW protection buying demand after the renewals as well, in particular for subsequent event covers.
With the retro market still dented by the lack of alternative capacity and trapped collateral, the ILW product is increasingly popular it seems.
This has also been reflected in the catastrophe bond market, where industry loss triggers and bonds for retrocessional reinsurance uses have been seen more widely over the last year.
These trends may continue until the collateralised retro market recovers from its trapped collateral issues and manages to build up more fresh ILS capacity once again.