Index-based reinsurance instruments, such as industry loss warranties (ILWs), are flexible, efficient, and are often available when traditional ultimate net loss (UNL) covers are either unavailable or extremely costly. However, buyers of index-based instruments are potentially subject to basis risk, which is the difference between actual losses and the payout of an index-based reinsurance contract.

Willis has developed a rigorous way to measure basis risk, a strategy for minimizing its impact, and a practical tool for applying both of these innovations to real reinsurance portfolios. These tools identify an optimal combination of index-based instruments and UNL policies that achieves client-specified goals in the most cost-effective way.

Please contact your Willis Re Account Executive for further information.