Willis Re launches $400m casualty catastrophe reinsurance facility

Reinsurance broker Willis Re has this morning announced the launch of a new global syndicated reinsurance facility, aiming to provide cedents with broad protection against casualty catastrophe events related to liability portfolios.

Interestingly, the facility could have a capital market angle for ILS players, as it may prove suitable as an entry point for alternative capacity providers, such as insurance-linked securities (ILS) fund managers, who would like to access casualty risk-linked returns.

The facility utilises risk modelling from Willis’ eNTAIL™ casualty catastrophe model, a model which features technology and methods that ILS investors will be familiar with from investing in property catastrophe risks, such as event loss tables (ELT’s).

The facility is designed to hedge potential downside risks associated with large casualty events, with the modelling assessing the potential size of exposures. It sounds like the facility could provide multiple entry points for markets wanting to provide capacity, perhaps leaving a way for ILS to participate in future.

It could prove that the model and approach taken to understanding the risks covered will encourage ILS players to look to casualty catastrophe risks and potential participation in Willis Re’s facility as a way to enter that market and diversify.

It begs the question whether such a market-facility could be structured to allow ILS players to participate alongside the traditional reinsurance markets?

Perhaps the facility could allow ILS players to supply capacity to it, but with an exit point, with the longer tailed casualty exposures left with traditional markets. If this could be achieved this reinsurance facility could be an ideal entry point to casualty risk for ILS investors and managers.

Named PRIMO, the casualty reinsurance facility launched by Willis Re is designed to respond to increasing concerns around accumulation and systemic risk, at a time when insurers are retaining more liability exposure than ever before.

Through its syndicated reinsurance approach PRIMO will provide insurers and protection buyers with “the broadest protection available” providing reinsurance coverage against “catastrophic and systemic loss accumulations arising from liability portfolios.”

Willis Re notes that as insurers grow their liability portfolios they can unwittingly magnify unexpected systemic exposures and accumulation risk in the increasingly complex and interconnected world that we live in.

PRIMO is designed to respond across all casualty and professional lines. Launching with the support of 20 of the world’s leading reinsurers, the new global facility is said to be an industry-first for casualty reinsurance coverage in providing over $400m of capacity worldwide on the basis of pre-agreed contract wording.

Willis Re said that capacity could grow to $1 billion in time, perhaps ILS players can help there in time, and that it could cover such risks as cyber as well.

Willis Re also notes that through the syndicated approach PRIMO will deliver depth to the market, helping to ensure more competitive pricing for cedents and also adding cross-cycle resilience due to diversifying the exposures into the market.

John Cavanagh, Global CEO of Willis Re, commented on the launch, saying; “PRIMO builds on over 25 years of continuous research and development since its precursor was developed in the late 1980s. Willis Re can now offer our diverse and global clients a tried and tested reinsurance solution protecting against events that impact multiple accident years, create quarter-on-quarter earnings pressure and represent a significant unknown in terms of quantum from the time the event is discovered until it becomes a paid loss.”

Andrew Newman, Head of Global Casualty at Willis Re, added; “While the first-party risks from earthquake, wind, flood and other man-made perils are well served by property catastrophe reinsurance markets, until today third-party casualty risks have been considerably less well served. While conventional clash reinsurance products can respond well to certain threat scenarios such as industrial accidents, or earthquake threat to workers compensation, they are not designed to and do not offer broad systemic protection. Now, for the first time, meaningful catastrophic reinsurance protection is available, and affordable, for writers of casualty business, including all financial and injury-based lines.”

David Marra, Chief Underwriting Officer – Casualty & Specialty at RenaissanceRe, a reinsurer participating in the facility said; “We are pleased to support the evolution of the PRIMO facility to offer meaningful casualty catastrophe coverage to P&C companies around the world.  RenaissanceRe has been involved with its precursor for over 10 years as it responded to catastrophic casualty events, and we are delighted to bring solutions to a wider number of clients through PRIMO.”

Simon Bird, Head of Casualty Treaty at BRIT Syndicate 2987, also said; “The PRIMO facility demonstrates the ability of the reinsurance market to offer both significant capacity in terms of quantum and a structure designed to give broad coverage.  As such it delivers a meaningful tool whereby casualty aggregations, both known and unknown, can be more effectively managed.”

If indeed PRIMO can help to better manage and diversify casualty aggregation risks into the broader reinsurance market, it might be able to attract some ILS players to participate as capacity providers. It could give ILS managers a useful way to learn more about casualty risks, by putting some capital to work in a managed facility of this sort.