Reinsurance capacity remains adequate and demand for protection globally remains high, according to executives at Marsh McLennan and Guy Carpenter, but Florida is a “different animal” according to GC CEO Peter Hearn.
In fact, speaking yesterday during the Marsh McLennan first-quarter 2021 earnings call, CEO of reinsurance broking arm Guy Carpenter, Peter Hearn, explained that Florida could actually see demand fall at the upcoming June 2021 renewal season.
John Doyle, president and CEO of insurance broking arm Marsh, acknowledged that while pricing continues to rise, its momentum has slowed somewhat, with “a slight moderation in the average price increase in the first quarter”.
In reinsurance, it’s the same scenario, with April’s rate increases a little down on the prior year and while momentum has slowed, the direction of travel remains positive, albeit with significant differences depending on client loss experience.
Guy Carpenter CEO Hearn explained, “So prices, I wouldn’t say, have gone down. I would say that prices have moderated. But that’s based on capacity, it’s a function of exposure and experience by client. It’s not a broad-based, across the board rate increase for everybody, regardless of how you performed.”
But the Florida insurance market is a little different and here Hearn said, “I think we have to separate Florida from the rest of our portfolio, because it’s a different animal in a lot of different ways. Not only from a regulatory environment, not only from a capital environment, not only from a capacity environment, not only from a legal environment.”
“So, as we look out into the rest of the year, we anticipate that for the broad percentage of our portfolio that pricing will remain consistent,” Hearn explained. Adding again that, “It isn’t based on individual client exposure and experience.”
The Florida market may face greater challenges though, although capacity is still deemed to be more than adequate to meet demand for reinsurance at the renewals.
Hearn said, “Florida, obviously, has gone through quite a turbulent time, not only from a loss standpoint, but from an underlying erosion of capital due to heightened litigation.
“What that’s resulted in is, demand is actually going to be less, because people are re-underwriting their books of business to deal with some of the spikes and exposure that they have.
“But, overall, I would say there is more than enough capacity in Florida.”
The re-underwriting of certain insurers books could also drive some more demand for reinsurance as well though, as thinly capitalised carriers realise the TIV’s they are carrying and how that compares to solvency capital and reinsurance provisions, we would suggest.
Hearn went on to say that for the non-frequency layers there will be plenty of capacity, so the per-occurrence bulk of insurers’ reinsurance towers.
But for the lower down and higher-risk layers, “pricing will go up” Hearn said.
“We are still unsure as to what the dimensions are. We are expecting mid-to high-single digits for those with loss experience, high loss experience,” he continued.
But it’s still a wait and see situation on the Florida renewals, Hearn said, adding that, “A lot of the capital in Florida comes from third-party capital, unlike the rest of our portfolio say for our retrocessional business.”
– “Significant increase” in litigated Florida claims in Q1: United (UPC).
– Florida set for some of the steepest NFIP flood insurance rate rises.
– Rising combined ratios, lower capital, to drive Florida reinsurance demand.
– RenRe said cautious on Japan, optimistic on Florida reinsurance renewals.
Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.
Get a ticket soon to ensure you can attend. Secure your place at the event here!