Reinsurance prices to drop by double-digits at June renewals: Fitch

by Artemis on April 8, 2014

Reinsurance rates and pricing are likely to see further declines, by as much as double-digits, at the next major contract signing at the June reinsurance renewals, according to Fitch Ratings.

Expected price declines will likely be greatest in the Florida property catastrophe reinsurance market, where much of the June reinsurance renewals are focused, said Fitch. Florida is particularly likely to see steep pricing declines as it is the focus of much of the alternative and third-party capital in the property catastrophe risk market.

Fitch said that the recent April reinsurance renewals saw much steeper price declines than had been expected, which suggests that the trend will continue in June. However, overall across the market, reinsurance spending may be closer to flat as Fitch expects that increased demand from specialist insurers will help to offset falling reinsurance rates somewhat.

Competition between traditional reinsurance companies and third-party or alternative capital is expected to be fierce at the Florida reinsurance renewals, said Fitch, which could exacerbate any price declines and lead to an even steeper drop in rates. Last year saw declines of as much as 25% in the Florida renewals, 2014 could see anything up to that amount it is expected and judging by recent catastrophe bond pricing anything is possible.

Martyn Street, senior director of insurance at Fitch Ratings, said in an update; “The build-up of capital is also contributing to ample capacity, as no major hurricane has made landfall in the US since Hurricane Wilma hit Florida in 2005 – the longest interlude since the 1860s.”

However, Street said that Fitch still believes that Florida property catastrophe risk is adequately priced, despite recent declines in pricing, especially when compared to risks in other countries and geographies where catastrophe reinsurance markets are more fragmented and perils not as well-modelled.

On the demand side Fitch expects that Florida could hold up well and not see the declines in reinsurance demand that were witnessed last year, helped by recently formed specialist Florida-only insurers which all require reinsurance protection. This new demand from new players in Florida could help to hold overall reinsurance spending steady, although the same spend may be providing significantly more cover we’d imagine.

The sentiment surrounding the next set of reinsurance renewals is increasingly looking negative and Fitch is not the only one expecting a continuation of recent reinsurance pricing trends. As Fitch rightly points out, many do believe that pricing for these risks remains adequate, but the question has to be how much further rates could go if the 2014 hurricane season ended up being as benign as last year’s.

Read other recent articles on reinsurance pricing, renewals and alternative capital:

Alternative reinsurance capital grew 28% to $50 billion in 2013: Aon Benfield

Energy insurance buyers to benefit from new reinsurance capital: Marsh

Reinsurance capital to increase again after limited Q1 catastrophe losses

Capital market threat could be reinsurance game-changer: A.M. Best

Reinsurance renewal prices fall by as much as 20% across sector

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