Florida renewal stand-off persists, but 15%-20% price rise expected: Analysts

Share

A surprisingly high proportion of Florida reinsurance renewals remain incomplete, as reinsurance and ILS markets remain at odds with broker and cedent terms and pricing ambitions, while a contraction in retrocession capacity also exacerbates the situation.

florida-map-flagWhen the reinsurance renewals are eventually completed though, analysts from JMP Securities believe that pricing could be seen to be largely up in a range of 15% to 20%.

The reinsurance renewals have seen a stand-off between sides for a number of weeks now, as markets (both traditional and collateralised or ILS fund backed) held back on agreeing firm order terms.

This stand-off still persists in some areas of the renewal market, according to JMP Securities analysts who met with reinsurers in Bermuda last week.

While they left the island with the expectation that reinsurance rates will largely be up by 15% to 20% at June 1st, they expect the spread amongst buyers will be much more significant than in recent years.

The reason for the spread will be the performance insurers have reported regarding losses and claims after hurricanes Irma and Michael, with those suffering the highest loss creep and claims inflation likely to be among the most penalised in terms of price.

Brokers and buyers are testing the market the analysts said, delivering “measured rate increases in firm order terms (FOTs), while reinsurers seem to be holding the line and largely not budging on the most aggressive placements.”

Ultimately the analysts believe that the market will find its clearing level, but that in order to do so we are likely to see privately placed layers and in some cases revised firm order terms.

With only a week to go, there remains a significant amount of work to do for this renewal to clear, with a high proportion of renewals still not agreed.

“Considering that the majority of renewals were not complete, including some FOTs still not released, with only 5-6 business days to go before June 1, we found things to be eerily quiet,” JMP’s analysts explained.

However, reinsurance capacity providers appear “remarkably relaxed” the analysts said, while brokers are busy but not appearing panicked about getting renewals signed.

They explained, “Ultimately, we believe that all major programs will clear the market, but that private layers and/or price increases on certain layers may be necessary to get some to the finish line.”

So far, reinsurance firms appear to be holding the line on pricing, while nobody has been cited as coming in to undercut the market at this time.

In fact, the analysts explain that the largest markets, both traditional reinsurance and ILS funds, are “exhibiting price leadership, seemingly holding back authorizations for the time being.”

Also exacerbating the Florida renewals situation is the contraction in retrocession capacity, as it remains tight and some providers have pulled back or have not delivered any quotes for this renewal period.

The analysts said that capacity could change, but so far there are no signs of anyone rushing in to replace the missing retro capacity, “but should pricing rise sufficiently, we would fully expect more capacity to enter,” JMP’s analyst team explained.

Overall the renewals look destined to head down to the wire and be late in some cases, as it is hard to believe that markets and brokers will agree all firm order terms within the week.

At the same time, it seems reinsurers are likely to head into the U.S. named storm season with less retrocession in place than in prior years, which may ultimately provide an opportunity for industry loss warranties (ILW’s) and perhaps industry trigger catastrophe bonds to fill a gap left by the evaporation of pillared capacity this year.

———–

ils-asia-2019Register today to attend our next ILS conference in Singapore, ILS Asia 2019.

We’re returning to Singapore for our fourth annual ILS market conference for the Asia region. Please register today to secure the best prices. The last few Early Bird tickets are still available.

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.

Read previous post:
Typhoon Jebi industry loss may settle at $15bn to $16bn: Analysts

The insurance and reinsurance industry wide loss from Japanese typhoon Jebi looks destined to rise even further, with analysts saying...

Close