Buyers seeking industry-loss-warranty (ILW) cover have lifted the rates they are willing to pay for cover as hurricane season approaches, narrowing the bid-ask spread and suggesting that more trades will clear, trading platform Tremor has predicted.
This comes as the retro market has locked up, leading buyers to the privately traded ILW market where annual trading volumes are expected to rebound by $1bn or more from 2019, with rates up by 10-15 percent since the start of 2020, as sister publication Trading Risk previously reported.
Tremor said it has seen an average of more than $70mn capacity offered and $30mn of protection requested each week since trading its first ILW in April after launching weekly auctions.
Data collated by the firm shows that in late April, buyers were only willing to pay around 12 percent rates on line for US wind and quake covers excess $45bn of industry losses, However, these indications have now shifted to almost 15 percent, closer to the roughly 21 percent spread that sellers of capacity are seeking.
The bid-ask spread on US wind and quake ILWs excess $30bn also narrowed by a similar margin, with buy interest leaping to 19 percent in mid-May from 15 percent in late April, against a steady 26 percent rate-on-line requirement from sellers.
However, as the Florida market hardened, ILW sellers of Florida wind cover excess $25bn have lifted their target rates on line from roughly 12-13 percent to 15 percent, outpacing the higher spreads now offered by buyers with buy interest remaining closer to 10 percent rate on line.
Tremor said the narrowing of spreads indicated that the increased willingness of participants to trade ILW instruments as the traditional market continues to harden.
“We believe that activity will increase even further after mid-year renewals complete when the dust begins to settle on traditional placements,” said Sean Bourgeois, Tremor’s founder and CEO.
“We have had more buyers and sellers than expected and much more volume than expected with new participants offering quotes every week – and we are still a few weeks out from mid-year renewals,” Bourgeois continued.
More than 10 markets have participated in the auctions, with more than 50 bids received.
“Reinsurance brokers are playing an important role as well, advising their clients how to bid programmatically on Tremor,” said Bourgeois.
Tremor hopes to become a permanent feature of the retro market to enable dynamic ILW trading throughout the year, he added.
Tremor currently offers ILWs covering Florida wind, Japan wind and US wind and earthquake and has so far completed seven auctions for each product.
The auction takes place every Thursday.
The Tremor marketplace includes over 80 global reinsurers from all major markets, a number of reinsurance brokers, ILS funds and direct access to capacity at Lloyd’s.
Tremor priced more than $2bn in traditional reinsurance capacity during 2019, of which alternative capital made up 3 percent.
Another auction platform, Akinova, completed its first parametric wind trade, providing cover for a European asset owner in the advertising industry this week.