Programmatic insurance and reinsurance risk transfer marketplace Tremor is set to open weekly online Industry Loss Warranty (ILW) auctions in an effort to ensure the market continues operating during the unfolding coronavirus pandemic.
Auctions begin on April 2 and will leverage catastrophe loss estimates for the US, Canada, Japan, and the Asia-Pacific region from PCS, a Verisk business, as well as global cyber as the reference trigger on transactions.
Tremor will post a range of common ILWs in each auction and interested parties can submit blind, sealed bids to buy and/or sell the posted ILWs; upon the close of bidding, Tremor will compute a market clearing price for each ILW and consequent trades.
US wind and earthquake perils will be available initially, followed by additional regions and perils in coming weeks.
Each structure will have a fixed insurance form and ISDA form contract wording from which participants may choose.
Participants are not known to each other in advance, and bids are blind and sealed; Tremor will reveal identities after the auction for parties who transact. Participants who are unable to transact in the auction will not have their interest revealed.
An AM Best credit rating of A- or better or fully collateralised commitments are required for protection sellers.
The bidding window will close at the end of the day each Thursday, the auction will run and results will be reported the following day.
Tremor will publicly report the clearing price for each ILW; when no trade clears, the company will report the spread to the first dollar of trade.
Bidders can leverage complex constraints to transact the coverage that is best for them, for example, to sell only the $10 million of ILW protection that offers the best margins.
“The re/insurance market must remain open for business, Tremor intends to not only play its part to ensure that this happens by helping to facilitate traditional transactions, but we are continuing to modernise trading in the process,” said Sean Bourgeois, Founder & Chief Executive Officer of Tremor.
“While some in the market are calling for delays and automatic contract extensions, we believe that we can help the market transact faster and more efficiently with our fully cloud-based marketplace technologies – even when facing the enormous challenges the market faces today.”
Tom Johansmeyer, head of PCS, added, “I’ve been a believer in Tremor since its earliest days and feel strongly that their technology can help address an important need in the global ILW market.
“Increased demand for ILWs over the past twelve months could potentially increase even more as a result of the impact COVID-19 could have on market conditions.
“The time is right, and the team is right. Tremor’s approach to market design should help protection buyers and sellers operate efficiently. We look forward to supporting Tremor in this initiative, particularly as we add more risk areas to our portfolio, which will help Tremor broaden its support to the global re/insurance industry.”
In addition, Tremor will be partnering with brokers on ways to help bring trades to its continuous ILW marketplace.