The industry loss warranty (ILW) market has seen a robust start to the 2012 renewal season with all major clients having bound significant limits in recent days/weeks. The ILW market tends to react to shortages of capacities in other areas of the market, mostly the ultimate net loss (UNL) retro market. The UNL retro market has been relatively dysfunctional, and most client programs are taking longer to place with a potential for short placement. The wider ILW market has therefore not seen the amount of activity normally associated with this time of year, and clients will look to ILWs in the coming days to bolster any shortfalls in coverage. Some markets have reported a drop in activity compared to last renewal as a result of this delay in the placement process.
However, pricing is showing signs of hardening which can be attributed to RMS v11 and the sheer amount of loss activity in recent times. Activity is the ultimate driver of price and for the reasons already mentioned we see strong demand in the first half of 2012, especially from the non-Lloyds protagonists who tend to buy later in the year. Overall, Guy Carpenter anticipates a very good year for the ILW sector as companies/syndicates react to a difficult twelve months.
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