The Florida reinsurance renewals on June 1st are all but done, according to sources and reports, with capacity availability far less of an issue than a year ago, or at the renewals completed earlier in 2023.
It also appears that insurers have become more accepting of the need to pay the prices being asked, which alongside an earlier start to negotiations and the still long-winded price discovery process, as well as private deals proliferating on the sidelines, has helped many reinsurance capital providers get to firm-order-terms much earlier this year.
Florida was always going to be a challenge and price increases have remained high, with reinsurance rate increases widely cited at 20% to 40%.
At some lower layers of reinsurance towers, rate increases are said to have topped out higher than that, but mainly for the more stressed carrier programs.
In the main though, this seems a renewal where the vast majority of cedents have secured, or are almost finished securing, the catastrophe reinsurance capacity they needed. How true that is may become clearer as rating reviews take place.
While on the other side of the market, the reinsurance capital providers, traditional and alternative, appear equally satisfied in what they have achieved.
The fact rate increases in 2023 are accumulating on top of the reinsurance rate increases achieved in Florida in recent years has helped, with the level of margin in the business now significantly higher.
In fact, one ILS manager with a relatively significant Florida focused collateralized reinsurance book, told us that even a repeat of hurricane Ian is now seen as an event that could potentially leave them with some profit, given the additional buffer higher pricing and improved terms provides over last year.
Some achieved that in 2022 anyway, at the lower-volatility end of private ILS, but now more see this as possible, our polling of contacts suggests, while if the legislative reforms enacted in Florida’s insurance market deliver even some of what has been promised, the buffer for performance through cat events may be even more evident.
Even at the lowest end of reinsurance towers we’re told that capacity has been largely available for carriers in Florida this year.
Some have had to adjust the way they integrated elements such as the free RAP layer coverage. It seems that has been a valuable lever at this year’s reinsurance renewals, allowing insurers in Florida greater flexibility and certainty around the layers below their FHCF coverage.
We’re told there has been a significant amount of work undertaken in 2023 to ready Florida carriers for the renewals as well, with portfolio adjustments and then also the evident go-forward exposure controls many have put in place, in terms of what business they will now write and the terms it is written under.
This, along with preparations by reinsurance brokers and negotiations on private deals well in advance of the June 1 renewals, have all helped to ensure the pace was far quicker this year and less of a bottle-neck emerged towards the end of the renewal period.
The one issue we are hearing from sources here is some concern over how certain markets may have received prioritised access to some program layers, a trend we discussed back in April when it became apparent some markets were discounting the top layers to enhance their access to higher-priced layers lower down in Florida reinsurance towers.
But that was only one strategy it seems, with some markets feeling that the “orderly” nature of the renewal has been orchestrated to a degree and was less about the most efficient capital getting access to the risk in every case, more about the capital that gave the most attractive concessions or benefits in return.
Of course, that’s really how every reinsurance renewal goes, with give and take, concession and bonuses (carrot and stick), from reinsurers and the brokers driving placements to a degree. Apparently it’s been far more evident in Florida this year, leading to some disappointing outcomes for some capital providers, we’re told.
Ultimately though, the key driver of the reinsurance renewals getting to their close, or very nearly, by June 1st, is the fact pricing in Florida is now so high as to be very attractive again to many, including some of the more speculative markets and global reinsurance giants.
As important is the fact the legislative reforms are now in effect and may evidence themselves through the coming year, if losses occur. As a result of which, many reinsurers and insurance-linked securities (ILS) funds are less confident that pricing will continue to rise at any great pace in Florida at the renewals in 2024.
Our sources suggest that rate decreases aren’t really expected, at least not of any significance, even if capital flows in and this is a major-catastrophe loss free year for Florida.
But, with reinsurance rates expected to decelerate anyway in 2024, any increases to keep up with inflation could be cancelled out by decreases due to an improved environment because of the legislative reforms, if the sector can measure that legislative benefit over the coming months.
While speculative reinsurance capacity has been evident at the renewal, with the likes of Berkshire Hathaway and D.E. Shaw exhibiting more appetite for Florida risk in 2023, it remains to be seen how long that lasts, should rates plateau, or even move down slightly.
On the other side, there are long-term reinsurance capital providers with a more sustainable Florida concentration focus, not least in the ILS market, for many of who the rates right now are seen as vastly improved and have taken the opportunity, where they can, to increase participation, but almost always moving up the towers at the same time.
As ever, it’s the risk-adjusted quality of rates that matters most (or should) to capacity providers.
So, the fact you could secure the same kind of pricing, while taking on slightly less risk again this year, means Florida turned out to be a far more attractive proposition (to capital) than many had thought it would, helping to speed the renewals towards their conclusion practically on schedule.
While it will take a few years for the effects of the legislative reforms to really make themselves clear in the claims history of Florida’s insurance marketplace, most see them as potentially significant moves that can only make the landscape better.
As a result, we’re hearing that the general sentiment is that the market for reinsurance covering Florida may have peaked, inflationary adjustments aside, unless there are further major catastrophe losses, surprises that cannot be foreseen, or the legislative reforms prove totally ineffective and stemming Florida’s litigation and fraud.
Inflation is worth highlighting as a wildcard though, a factor that could continue to drive both demand for rate and also the need for more reinsurance capacity there.
With State Farm exiting California property risk and saying that property reconstruction costs have been increasing faster than inflation, it is possible to imagine that Florida may be experiencing a similar situation, especially given the significant real estate activity in the state, as well as the population movement into the state over the last few years.
Risk model updates, including new exposure and claims data, will help reinsurance and ILS market participants to better understand how inflation rates and various costs could be affecting exposure in the state of Florida. That could be critical for future renewal years.