Double-digit rate increases forecast for Florida reinsurance renewal by S&P


Given the magnitude of the insurance industry losses suffered in regions affected by major hurricanes in 2017, rating agency Standard & Poor’s anticipates a continuation of the trend seen in January for rising rates, forecasting double-digit rate increases at the Florida and Caribbean renewals later this year.

Increasing reinsurance and ILS ratesThe trend seen at the January reinsurance renewal was “directionally positive” S&P says and is expected to continue, as reinsurers seek to earn back losses suffered at the mid-year 2018 renewal season.

“We continue to maintain a stable outlook on the global reinsurance sector for the next 12 months and on the majority of the reinsurers we rate,” commented S&P Global Ratings credit analyst Taoufik Gharib. “In general, it seems that during the 2018 January renewal season, reinsurance pricing stopped its downward trajectory, reaching an inflection point in the underwriting cycle. Directionally, the trend is positive.”

S&P explains that the “seminal question” is what will happen with reinsurance rates through the rest of this year and beyond.

The rating agency believes that “the January renewal season usually sets the tone for the rest of year” given the volumes of reinsurance and retrocession renewed at that juncture.

It can also take time for catastrophe losses to work their way into the rating system, S&P notes, saying that typically it can, “take a few quarters to work their way through the system and be fully digested by the industry as initial rate increases are absorbed, set reserves develop, claims are paid, and disputes are settled.”

This leads the rating agency to a positive outlook for reinsurance pricing at the upcoming mid-year June and July renewals, which are all key in the cycle for both traditional and alternative capital.

In fact, given the amount of alternative capital deployed into the Florida reinsurance market, the mid-year renewals are just as important to insurance-linked securities (ILS) managers and in 2018 it is they who will hold a significant amount of sway over how large any rate increases are.

S&P said that it believes, “rate increases will continue through the remainder of the year, especially considering that Florida and Puerto Rico will be up for renewal in the first half of the year.”

In fact the rating agency forecasts just how high the rate increases will be saying, “Those markets will undoubtedly experience double-digit rate increases given the magnitude of the losses they suffered in 2017.”

That compares to the “flat to 5%” price increases seen in aggregate for global reinsurance business at the January renewals. However, loss affected renewals in January did rise by double-digits in the main, so this is more a case of keeping pace.

Just as important to the trajectory of pricing at the mid-year reinsurance renewals in 2018 will be the traditional market and its appetite for risk.

At January it was seen that a number of large traditional underwriters came in at the last-minute with an appetite to maintain volumes and this held back rate increases on many accounts.

The traditional reinsurers appetites to maintain volumes of premiums underwritten has been a significant driver of rates over recent years, in fact we’d venture as important directionally to rates as the growth of alternative capital.

While both traditional and alternative sides of the market remain well capitalised and while the ILS market continues to grow, it remains to be seen whether the rate trajectory experienced in January can persist, or whether the appetite to maintain volumes is a greater factor in the outcome of the renewals.

Finally, S&P also notes the potential for the centralisation and consolidation of reinsurance purchasing and panels to persist, which could also have a bearing at the mid-year renewals.

With new demand expected to be seen, but not at levels sufficient to absorb all of the capital seeking to be allocated to reinsurance in key property catastrophe zones, it’s certain that the mid-year renewals will see a competitive environment once again.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.