Craig Wenzel, Head of Alternative Capital at XL Catlin, does not understand why there is any concern amongst cedants that alternative reinsurance or ILS structures could fail to payout in the event of a major loss.In comparison to the frequent claims disputes in the traditional reinsurance market, the collateralised reinsurance and ILS market has a…
via Unwillingness to pay “one of the big myths” of the ILS market: Craig Wenzel, XL Catlin — Artemis.bm – The Catastrophe Bond, Insurance Linked Securities & Investment, Reinsurance Capital, Alternative Risk Transfer and Weather Risk Management Blog
For my part, I don’t think that anybody would deny that traditional insurance and reinsurance contracts have generated their fair share of disputes and delayed payments over the years, although perhaps less so in recent years than in the “Golden Age”.
But it is important to point out that a number of ILS products and security structures have been actively marketed in recent years as insolvency or bankruptcy remote, and effectively litigation-proof – in circumstances where, despite their deliberate design and collateralization arrangements, they have not yet been fully tested in the event of catastrophic losses.
It is not difficult to predict the kinds of claims that might be asserted in the event of a total loss scenario, whether on the insurance side, or (more realistically) on the securities side, taking into account the enormous volume of securities disputes that have occupied lawyers’ time since the global financial crisis. And, there have, already, been a few disputes in the ILS space.
But as everybody knows, past performance is no guarantee of future results, and weather forecasts are quite often wrong.