Florida domestic carriers will have a challenging June reinsurance renewal, even with the implementation of the legislative reforms, suggest analysts at Stonybrook Capital.
According to the analysts, natural catastrophes and the increased frequency of secondary perils placed pressure on property carriers across the nation in 2022, especially in the coastal regions.
Stonybrook writes, “The 2022 year-end renewals experienced rate-adjusted rate increases for property reinsurance renewal averaging north of 35% as a cumulative result of losses caused by extreme weather events, economic/social inflation, and geopolitical uncertainty.
“There is an expectation the coastal, especially Florida, domestic carriers will have a challenging June reinsurance renewal even with the implementation of the legislative reforms.”
Indeed, Stonybrook notes that catastrophe reinsurers are “in the driver’s seat”, having successfully pushed retentions, rates, and terms and conditions onto their cedants in the 2022 renewals.
The analysts state that many reinsurers would not support any layer below the 1:10 attachment point, resulting in cedants taking meaningful retention increases, while reinsurers are also often restricting cover to “named perils”.
The analysts continue, “The harsh renewals for primary insurers is driven by an even more restricted retro market.
“With a harder retro market, reinsurers were hesitant to authorise lines not knowing the capacity available to cede their own risks.
“Although the market has become more orderly in 2023, these market forces continue for the crucial June 1 coastal catastrophe renewals.”
With all this in mind, Stonybrook suggests that the legacy Florida homeowner carriers will struggle in the near future as they still have a number of open claims and lawsuits from prior years.
However, as the loss environment begins to stabilise post-reforms, reinsurance costs should eventually become more favourable leading to primary rates being more affordable to homeowners.
Further, the introduction of the Reinsurance to Assist Policyholders Program (RAP) and the Florida Operational Reinsurance Assistance Program (FORA) also will help soften the reinsurance market to some extent.
Stonybrook writes that the RAP program is more favourable as it is effectively a state-backed layer below the Florida Hurricane Catastrophe Fund (FHCF), which will be “especially useful when companies place reinsurance this summer.”
Meanwhile, the FORA program “missed the mark” as the attachment point may not be low enough, which the analysts say highlights the remaining capacity and pricing issue at the bottom of carriers’ reinsurance programs.