Willis Re: Protection Buyers Drive 25% Growth in the 2012 ILW Market
London, UK, January 31, 2012 - 2011 activity will drive 25 percent growth in Insurance Loss Warranties
(ILWs) volume for 2012, according to a new report released by Willis Re, the reinsurance
arm of Willis Group Holdings (NYSE: WSH), the global insurance broker.
Willis Re estimates that the ILW market reached trading volumes of $6bn last year, resulting in an
estimated 10 to 25 percent increase in trading. With trades hitting highs of between $2.75bn and
$3.25bn during the crucial 1 January ILW trading season, the report predicts that the 2012 market
could experience peaks in trading volume and pricing equivalent to those seen in the hard market
of 2006-2007, post-Hurricanes Katrina, Rita and Wilma.
Henry Kingham, Executive Director, Willis Re Specialty and co-author of the Q1 2012 ILW update, expects
pricing this year to be around 20 percent up on 2011 levels. The report states that
although the average Rate on Line of 15.5 percent predicted for 2012 falls short of the
average 17.5 percent reached in 2007, the trend is for a strong year for the ILW
Kingham explains: “In the second half of 2011, there was heightened speculation on availability and pricing of
retro capacity for the 2012 season, which — conversely to the late renewal in the traditional
market —pushed ILW protection buyers into the market early to seek cover. However, once the ultimate
net loss (UNL) renewal season began with gusto, the ILW market slowed slightly as clients and
markets concentrated on renewing their traditional book of business. Despite the hiatus, at the time of
going to press, the majority of 1 January UNL renewals had been put to bed and
we have seen a significant uptick in ILW trading.”
ILWs are private reinsurance or derivative transactions, triggered by an index of the total industry loss arising
from a natural catastrophe. The ILW product has become increasingly popular in recent years as an
efficient way to invest in a catastrophe related derivative product, and is viewed by many, particularly
in the capital markets, as an integral part of a buyer's exposure hedging strategy.
The report predicts that for 2012, around 75 percent of the estimated $6.5-7.5bn of ILW capacity traded
will come from capital markets players, including those that use a fronting reinsurer to support a
Commenting on the factors influencing ILW buying demand, pricing and capacity supply, Kingham said, “We saw significant
pricing volatility on contracts at 1 January. This was caused by a record tally of natural
catastrophe losses in 2011, vendor model changes and shifts in capacity caused by supply and demand
fluctuations. It is difficult to distinguish between the impact of risk modeller RMS' Version 11 US
wind model and the wider impact of 2011 losses on ILW buying demand and capacity supply.
However, we observe generally that loss-affected contracts experienced a 30-50 percent price increase in January and
non loss-affected contracts were 10-20 percent up on a year-on-year basis.”
About Willis Re
One of the world's leading reinsurance brokers, Willis Re is known for its world-class Analytics capabilities, which
it combines with its Capital Markets and Reinsurance expertise in a seamless, integrated offering that helps
clients increase the value of their businesses. Willis Re serves the risk management and risk transfer
needs of a diverse, global client base that includes all of the world's top insurance and
reinsurance carriers as well as national catastrophe schemes in many countries around the world. The broker's
global team of experts offers services and advice that help clients make better reinsurance decisions, access
worldwide capital markets and negotiate optimum terms. For more information, visit www.willisre.com.
Willis Group Holdings plc is a leading global insurance broker. Through its subsidiaries, Willis develops and delivers
professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public
entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries,
with a global team of approximately 17,000 employees serving clients in virtually every part of the
world. Additional information on Willis may be found at www.willis.com.