March 22nd, 2012

Industry Loss Warranty Market

Posted at 1:00 AM ET

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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*Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd., which is authorized and regulated by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product. Cory Anger and Chi Hum are registered representatives of MMC Securities Corp.

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