Florida reinsurance renewals on June 1 are almost done, according to sources and reports, and capacity availability is much less of an issue than it was a year ago, or in renewals completed in early 2023.
It also appears that insurers have become more receptive to the need to pay asking prices, which, coupled with an earlier start to negotiations and the still lengthy process of price discovery, as well as the proliferation of private deals on the side , has helped many reinsurers. capital providers reach firm order terms much earlier this year.
Florida was always going to be a challenge and price increases have remained high, with reinsurance rate increases widely quoted between 20% and 40%.
In some lower tiers of reinsurance towers, rate increases are said to have exceeded that, but mostly for the most stressed carrier programs.
Overall though, this looks like a rollover where the vast majority of cedants have secured, or nearly finished securing, the catastrophe reinsurance capacity they needed. The truth of this may become clearer as rating reviews are made.
While on the other side of the market, traditional and alternative reinsurance capital providers seem equally pleased with what they have achieved.
The rate increases made in 2023 are building on top of the reinsurance rate increases achieved in Florida in recent years that have helped, with the margin level in the business now significantly higher.
In fact, an ILS manager with a relatively large collateralized reinsurance portfolio centered in Florida told us that even a repeat of Hurricane Ian is now seen as an event that could potentially leave them with some profit, given the added cushion that a higher price provides. high and best terms. about last year.
Still, some did that in 2022, at the less volatile end of private ILS, but more now see this as possible, our contact survey suggests, while if legislative reforms enacted in Florida’s insurance marketplace meet even some of what has been promised, the damper to performance through cat events may be even more apparent.
Even at the low end of the reinsurance pylons, we’re told that capacity has been largely available to carriers in Florida this year.
Some have had to adjust how they integrated things like the free RAP layer coverage. It appears to have been a valuable lever in reinsurance renewals this year, allowing insurers in Florida more flexibility and certainty around the levels below their FHCF coverage.
We’re told a significant amount of work has been done in 2023 to prepare Florida carriers for renewals as well, with portfolio adjustments and then also the blatant exposure controls that many have put in place, in terms of what business they’ll write now and the terms under which it is written.
This, along with preparations by reinsurance brokers and private deal negotiations well in advance of the June 1 renewals, have helped to ensure the pace is much faster this year and fewer bottlenecks emerge towards the end. of the renewal period.
Orderly remains the key word in any commentary on Florida reinsurance renewals in 2023, and the market settles much more efficiently.
The only issue we’re hearing from the sources here is some concern about how certain markets may have been given priority access to some layers of the program, a trend we discussed in April when it became apparent that some markets were discounting the top layers to improve their access to higher levels. layers with lower prices in reinsurance towers in Florida.
But it appears that was just a strategy, with some markets feeling that the “orderly” nature of the rollover has been orchestrated to some degree and was less about the most efficient capital having access to risk in all cases, more about the capital that gave the most attractive concessions or benefits in return.
Of course, this is really how every reinsurance rollover works, with give and take, concessions and bonuses (carrot and stick), from reinsurers and brokers pushing placements up to a point. It has apparently been much more apparent in Florida this year, leading to some disappointing results for some capital providers, we’re told.
Ultimately, however, the key factor in bringing reinsurance renewals to an end, or nearly so, on June 1, is the fact that prices in Florida are now so high that they are again very attractive to many. , including some of the world’s most speculative markets and reinsurance giants.
Just as important is the fact that the legislative reforms are already in place and may become apparent over the next year, if losses occur. As a result, many reinsurers and ILS funds are less confident that prices will continue to rise at a rapid pace in Florida in 2024 renewals.
Our sources suggest that rate reductions are not really expected, at least not significantly, even if capital flows and this is a year free of major catastrophe losses for Florida.
But, with reinsurance rates expected to slow anyway in 2024, any increases to keep up with inflation could be offset by declines due to an improved environment due to legislative reforms, if the industry can measure that. legislative benefit in the coming months.
While speculative reinsurance capacity has been evident in the rollover, with the likes of Berkshire Hathaway and DE Shaw showing more appetite for Florida risk in 2023, it remains to be seen how long it lasts, if rates stabilize or even drop slightly.
On the other hand, there are long-term reinsurance capital providers with a more sustainable concentration approach in Florida, most notably in the ILS market, for many of whom are seeing much improved rates at this point and have seized the opportunity , where they can , to increase participation, but almost always climbing towers at the same time.
As always, it is the quality of risk-adjusted rates that matters most (or should) to capacity providers.
So the fact that it was able to lock in the same kind of price, while taking on slightly less risk this year, means that Florida turned out to be a much more attractive proposition (for capital) than many had thought, which helped to expedite renewals. towards completion practically on schedule.
While it will take a few years for the effects of the legislative reforms to become truly clear on Florida’s insurance marketplace claims track record, most see them as potentially significant moves that can only improve the picture.
As a result, we hear the general sentiment is that the reinsurance market covering Florida may have peaked, inflation adjustments aside, unless there are more major catastrophic losses, unforeseen surprises, or legislative reforms prove fully ineffective and stop Florida litigation and fraud.
However, it is worth highlighting inflation as a wild card, a factor that could continue to drive both demand for rates and the need for more reinsurance capacity there.
With State Farm getting out of California real estate risk and saying that property redevelopment costs have risen faster than inflation, it’s conceivable that Florida could be experiencing a similar situation, especially given the significant real estate activity in the state, as well as the population. movement into the state in recent years.
Updates to the risk model, including new exposure and claims data, will help ILS and reinsurance market participants better understand how inflation rates and various costs could affect exposure in the state of Florida. That could be critical for future years of renovation.
Read all our reinsurance renewal news and analysis.
Read all our news and analysis on the Florida insurance and reinsurance market.