tom-johansmeyer
Tom Johansmeyer, head of PCS
20 October 2019Alternative Risk Transfer

Loss creep remains a big issue for the ILS market: Johansmeyer

Loss creep remains a big issue for the insurance-linked securities (ILS) market, with some investors grappling with developments around the impact of 2017’s Hurricane Irma, which inflicted $77 billion in economic losses in the Northern Caribbean, Puerto Rico and Florida.

Tom Johansmeyer, head of PCS, told APCIA Today that this is still having consequences for the market.

“We’re still watching that the loss creep is an issue,” said Johansmeyer.

“We’re wondering whether the creep on Irma is going to affect the extension period on industry loss warranties (ILWs). There are 12-month ILWs that could extend for up to 24 months from the event to accommodate any creep, or they could extend for 20 months from the end of the initial period.”

He explained that if an event occurred in the middle of an ILW term then it could be another 24 months, plus whatever was left to run before that ILW ended, although language varies across contracts. As Johansmeyer pointed out, that represents a long period of uncertainty for investors.

A number of 2018 events including significant hurricanes, losses from the Californian wildfires, and three events in Japan are also relevant to the ILW market, he said.

“Typhoon Trami affected a number of ILWs with $5 billion triggers we’re still waiting to see how that shakes out, as it trapped some collateral. It hasn’t helped that informal reporting agents have been used with some 2018 ILWs,” he said.

“There have been some issues with figuring out how to exit those transactions, because no-one knows yet whether Swiss Re’s sigma is going to come up with a second estimate of losses.

“For some of the storms the ILWs are right up against their trigger point. That has given the market pause for thought,” he concluded.

Already registered?

Login to your account

To request a FREE 2-week trial subscription, please signup.
NOTE - this can take up to 48hrs to be approved.

Two Weeks Free Trial

For multi-user price options, or to check if your company has an existing subscription that we can add you to for FREE, please email Elliot Field at efield@newtonmedia.co.uk or Adrian Tapping at atapping@newtonmedia.co.uk


More on this story

Insurance
5 March 2020   PCS will now provide full industry loss index coverage from Canada to Argentina.
Alternative Risk Transfer
19 December 2019   As 2019 comes to an end Tom Johansmeyer, head of PCS at Verisk, looks back at the year.
Alternative Risk Transfer
20 November 2019   Tom Johansmeyer, head of PCS at Verisk, investigates the chances of the ILS market’s hitting a $1 billion cyber risk loss this year.