Florida reinsurance renewals to see “material” rate increases: KBW

The June 1st Florida focused reinsurance renewals are expected to be very late, but prospects for rate increases are said to be particularly good, as analysts at KBW said they expect Florida property catastrophe rate increases well above the January 1, 2022 renewals’ low double-digit pace.

At the same time, following visits with the Bermuda reinsurance market this week, KBW’s analyst team led by Meyer Shields said that the feeling in the market there is that Florida’s special session legislative attempts are not expected to materially impact rate trends or reinsurers underwriting appetites in time for the June 1st renewals, something we’ve been documenting in our recent coverage.

The renewals are expected to be very late, the analysts report, while many reinsurance towers risk not getting filled at this stage.

The challenges in filling towers is now leading to “horse trading”, KBW’s analysts said, as insurers push reinsurers to accept lower-layers, in order to get access to, or more of, the most attractive higher-layers of their reinsurance towers.

There is said to be significantly reduced appetite for Florida risk “at any price” with capacity down and the reinsurers that have looked to reduce their volatility unlikely to change tactics.

The analysts cite rates on line “likely at or above 100%” for some of the lower reinsurance layers, which perhaps provides some idea of how popular one of the new reform bills, with its $2 billion below the FHCF reinsurance fund, may prove to be among the more challenged insurers.

Carriers that got out early with their reinsurance renewals have still been paying a lot, but the price of securing your coverage in advance to give you some security in maintaining your Demotech rating is likely worth a lot as the rest of the renewals appear increasingly late and could go down to the wire.

On the proposed property insurance reforms going through the special session, KBW said, “Virtually all executives doubt that the Florida legislature’s recently convened special session will materially impact either rate trends or reinsurers underwriting appetites for the June 1 renewals, although the Reinsurance to Assist Policyholders’ program (which would sit below the Florida Hurricane Catastrophe Fund) could provide some capacity for the difficult-to-place lower layers.”

There is limited data on rate increases, the analysts noted, with the late renewal season meaning there is still a lot to be completed at this time.

But one executive “estimated a 20% risk-adjusted (i.e., after considering materials and labor cost inflation) average rate increase – with significant variance by cedent loss experience, geography, and reserve development history – and another described a recently-published industry article reporting a 90% rate-on-line on as completely rational, with even 100%- plus rates on line making economic sense because of the automatic reinstatement,” the analyst team explained.

Additionally, the Bermuda reinsurance executives KBW met with do not expect the big European reinsurers to significantly increase their appetites for Florida, so are not anticipated to “materially disrupt this year’s hardening Florida market.”

KBW’s analysts paint a picture of the reinsurance renewals that reflects the challenging market situation, as well as reinsurers rising aversion to risk they cannot quantify.

Absent meaningful reforms, it’s unlikely anything can meaningfully change the renewals situation at this late stage, aside from some carriers perhaps being able to tap the new $2 billion state-backed fund for some lower-layer reinsurance coverage.

Further ahead, it will be down to how reforms take effect and whether litigation can be halted in the Florida property insurance market, as well as whether there are any major storms this year that hit the state, as to whether reinsurance market conditions become easier in 2023 for Florida’s insurance carriers.