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After another intense period of catastrophic losses, Intelligent Insurer examines how this has impacted on industry loss warranties and their role in today’s reinsurance market.

Another period of intense catastrophe activity in the first six months of 2011 has proved disastrous for many. But as rates in the traditional reinsurance industry respond, this is also true in the Industry Loss Warranty market, which is also seeing rate increases.

A recent JLT Re report noted that although “the vast majority of reinsurers” have already blown their 2011 catastrophe budgets, Industry Loss Warranty prices have seen “increases across the board” from moderate to significant depending on the covered territories/perils, driven by “large-scale losses coupled with the recent model release of RMS 11.0 for US Hurricane”, along with “deteriorating combined ratios, uncertainty around pricing of risk and resulting impact on cost of capital”.

However, there are also more seasonal drivers to consider, argues Paul Schultz, president of Aon Benfield Securities. “Clearly, as we get closer to the start of the US hurricane season, rates tend to harden in general, so this is a typical reaction in any underwriting area,” he says.

Industry Loss Warranties, Catastrophe bonds, Cat bonds, JLT Re, Leadenhall Capital, Aon Benfield Securities, Juniperus Capital, FBR Capital Markets, Barlow Lyde and Gilbert

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