Stalemate over Irene livecat trades; third event ILWs on risk
Only a handful of livecat industry loss warranty (ILW) deals were conducted last week as Irene ploughed through the Caribbean and on to become the first hurricane to make landfall in the US in three years.
Livecat ILWs are private reinsurance or derivative transactions, triggered by an index of the total industry loss arising from a specific named storm. They are traded during the course of a storm as a dynamic means of hedging exposure.
Brokers confirmed that "a handful" of trades were completed as the storm developed during the course of this week. However, some reported a "stalemate" between buyers and sellers.
Contracts are believed to have been closed with industry loss trigger points of between $10bn and $20bn, covering losses from Irene between the Carolinas and Maine on the east coast of the country.
Whereas interest was noted earlier in the week for Irene-specific east coast contracts with an attachment point of $5bn, their availability dried up, sources said. Buyers were also understood to be unable to secure Carolinas-only cover as capital providers shied at the storm's trajectory.
It is not just Irene-specific livecat contracts that are on risk from the storm.
Writers of popular third event All Natural Perils ILW contracts with a $5bn attachment point are understood to be on risk for Irene as unparalleled losses earlier in 2011 triggered the first two events.
Capital providers may have to pay out if industry losses from Hurricane Irene exceed $5bn, sources told Trading Risk.