Some new reinsurance capital could begin to flow in advance of the Florida focused June renewal season at June 1st 2023, according to Chris Dittman, Head of Florida Strategy at Aon’s Reinsurance Solutions.
He highlighted the “real issue” with the lack of reinsurance market appetite for layers below the Florida Hurricane Catastrophe Fund (FHCF).
As well as the erosion of the surplus levels of Florida carriers, due to poor underwriting results, driven in the main by litigation.
All of which is “creating a severely capital deficient Florida marketplace” Dittman explained.
In Florida, perhaps the peak cat risk zone in the world, the current global reinsurance capital supply demand imbalance is exacerbated.
“The availability of reinsurance capacity is moving further away from loss as reinsurers struggle to identify the true loss costs,” Dittman said.
In looking forward to the June 2023 reinsurance renewals for Floridian risks, Dittman said that it’s important to “keep a sharp eye on the 1/1 renewals.”
“Retro capacity is extremely tight and will likely limit how much risk reinsurers can hedge in 2023. Additional reinsurance capital is using the “wait and see” approach,” he explained.
But, positively added that, “If projected pricing and terms for the 1/1 renewals truly hold and the Florida legislative special session next week provides meaningful changes, we will likely see some new capital start to slowly become available for 6/1 renewals.”
Continuing to say, “Assuming the market perceives a positive outcome and capital slowly comes into the market for 6/1 renewals, this will alleviate some of the stress on the property CAT reinsurance programs for Florida insurance carriers.
“Furthermore, a change in the one-way attorney statute will stabilize overall loss costs going forward for Florida insurance carriers and the impact of this will go a long way to stabilize the Florida insurance market in the long run.”
However, there is a long way to go for reinsurance capital to feel more comfort in the Florida market and it’s currently questionable whether, even with reforms in place there will be much more reinsurer and ILS market appetite for Florida risk in 2023 (significantly higher pricing being one possible stimulant for appetites though).
In addition, Dittman said that cedents will need to “keep an open mind to alternative solutions and sources of capacity” as they look to seal their reinsurance renewal capacity needs.
Adding that, “Aon is working hard to create additional capacity and ensure that reinsurers can support our clients to the fullest, by addressing uncertainties like inflation and secondary perils head-on.”