ILW market continued to soften like cat bonds into July renewal: Willis Re

ILW market continued to soften like cat bonds into July renewal: Willis Re

The marketplace for industry-loss guarantee (ILW) protection continued to soften into the July renewals, broker Willis Re has explained, which seems an extension of the pattern seen pre-June, as these structures followed the catastrophe bond markets pricing trend.More predictable structures have proven extremely popular amongst insurance-linked securities (ILS) financiers and alternative reinsurance capital companies in 2021.
The named danger, fairly higher-layer, more predictable nature of the 144A catastrophe bond has been the greatest beneficiary of this, with matching high levels of issuance seen, as our new feline bond market report describes.
The industry-loss warrant (ILW) has actually been another beneficiary of this, as financiers have turned more attention to this structure, most often utilized for retrocessional reinsurance requirements.
As weve described through our routine coverage, spread tightening up in the disaster bond issuance market drove multiples to levels last seen in 2019.
The multiple-at-market of disaster bonds issued through the first-half of 2021 is now extremely somewhat lower than the full-year multiple of 2019.
This has actually driven much tighter spreads however, as catastrophe bonds spread above expected loss fell to its lowest given that 2018 throughout first-half issuance.
Following on the heels of the catastrophe bond market, the marketplace for industry-loss warranty (ILW) security also softened year-on-year, fas capability turned its attention to ILWs in the run up to the renewal season.
That pattern persisted through the renewals, according to reinsurance broker Willis Res report.
Around the June and July renewals, Willis Re stated, “Buyers continue to make use of a range of indexed link products to address their Capital requirements with the Cat bond and ILW markets continuing to soften from what was seen at 1 January, with investor need high for called hazard transactions.”
Willis Re stated that retrocession capability was largely adequate at the renewals, which will have been helped by the capital market investors appetite for these threats, in ILW and feline bond form.
Certainty, in how structures are going to carry out, has actually ended up being essential for financiers, resulting in raised cravings for cat bonds and ILWs, it appears.
Associated with this, Willis Re said, “There has been a continued migration of capability towards rated balance sheets largely triggered by the unpredictability surrounding the longer tail nature of COVID-19 related claims activity.”
It is partly this uncertainty that is driving collateralized retro to be a little less readily available and leading to more capital being interested in the indexed ILW and feline bond products, it appears.
We explained before that collateralized reinsurance has not softened to the same degree as catastrophe bonds and ILWs.
This stays true. But right now, as the renewal clean up continues, we hear that collateralized and traditional reinsurance is suddenly looking more competitive again and this might have a bearing on the marketplace dynamic over the coming months, in addition to what structure protection eventually gets purchased in.
Whether this is down to excess capability that didnt get released at the renewals, or a realisation amongst markets that they are leaving danger on the table by not contending as tough on rate, isnt yet clear.
However this might have a bearing on the future renewals and probably on the renewal discussions that start later this quarter.

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