In a clear sign that the insurance and reinsurance market has moved beyond the “u-shape” that we saw earlier in the year, when primary and retrocession rates at either end were rising faster than reinsurance, now carriers are beginning to cite the harder reinsurance market as a reason to hike their front-end rates even further.
A year ago, primary insurance rates, particularly on the commercial and catastrophe exposed sides, where rising faster than reinsurance.
At the same time, retrocession pricing was rising faster as well, as the capacity crunch in that segment reduced available capital and stimulated rate increases.
Now, finally (it’s worth noting that it has taken a global pandemic to force this through), reinsurance rates are outpacing the primary end of the market it seems.
HCI Group, the Florida headquartered property and casualty insurer and parent of Homeowners Choice Property & Casualty Insurance Company, Inc., said today that it is seeking out rate increases from its primary insurance customers, to offset the increases in reinsurance costs it has experienced at the renewals.
“Increased reinsurance costs, by far our largest cost, have forced us reluctantly to seek rate increases,” explained HCI Group Chief Executive Officer (CEO) Paresh Patel.
Homeowners Choice has been approved for a 6.9% rate increase for its homeowners’ and condominium insurance products by state regulators, the company said, taking effect from October 1st.
At the same time, Homeowners Choice plans to also apply for a 5-7% rate increase for dwelling and fire policies, and wind-only policies, subject to the outcome of negotiations with regulators, it said.
HCI’s insurtech subsidiary, TypTap Insurance Company, has also implemented a 20% increase for its flood insurance product on July 15th 2020. TypTap has now applied for a 12-14% rate increase for its homeowners’ insurance product on top of this, which if approved would be expected to go into effect before the end of the year.
Rising reinsurance costs are now driving primary insurance rates, when it had almost been the other way around only less than a year ago.
To us, this is all part of the market adjusting its prices to find a new and more sustainable level of returns, that also take into account loss costs, loss inflationary trends, cost-of-capital and expenses.
Of course the latter two, cost-of-capital and expenses, are areas with room for optimisation in the industry as well, so don’t immediately expect new pricing levels to become baselines, as there is always room for greater efficiencies to be found.