The Ukraine war and stranding of leased aircraft in Russia has led to constrained capacity in a global specialty reinsurance market that was already struggling to access capital.

Standalone industry loss warranty (ILW) cover has also become difficult to secure, and this has been exacerbated by the capital constraints in the insurance-linked securities market expected from hurricane Ian.

An ILW is a reinsurance or derivative contract that kicks in when industry-wide insured losses exceed a specified threshold. Coverage is typically triggered when an index provider says the relevant threshold has been met.

Tom Johansmeyer, head of PCS, a Verisk business, says specialty writing at the 1/1 reinsurance renewals led many players to need broad specialty retrocession, spanning four major classes: marine, energy, aviation and terror (MEAT).

He explains PCS worked with the market to develop a structure for the MEAT classes, because demand for aggregate specialty retrocession ILWs began to rise.

"With independent reporting capabilities in each of those classes of business and historical use as a reporting agent in standalone specialty over the past five years, the role for PCS's MEAT structure quickly became clear. The aggregate ILW includes trigger points for each of the classes covered (i.e., marine, energy, aviation and terror) and a shared limit," says Johansmeyer.

The components of the MEAT structure involve PCS global specialty lines loss reporting platforms developed as early as 2017 with PCS Global Marine and Energy, and as recently as a year ago with PCS Global Aviation.

Asked if PCS has already completed MEAT trades, Johansmeyer says: "We've seen components of MEAT completed at 1/1 (e.g., MET), although there has been a lot of MEAT quoted. We expect further adoption in post-1/1 specialty ILW retro trading, and more as losses from Russia and Ukraine begin to come in."