Last week we wrote that commercial property policy owners in Louisiana were to begin to feel the benefits of cheaper property catastrophe reinsurance as Louisiana Citizens promised to pass on some of its reinsurance savings. Now a major Florida homeowners insurer is planning to do the same.
The decline in property catastrophe reinsurance pricing across hurricane exposed states like Florida and Louisiana has been significant. With pricing down as much as 20% at the mid-year reinsurance renewals, questions have been asked about when policyholders would begin to feel the benefit of any savings.
Property catastrophe reinsurance pricing has declined for a number of reasons. The influx of alternative reinsurance capital and the increased competition this has brought to the market is one of the largest factors, with traditional reinsurers already well-capitalised the increase in price competitiveness of collateralized reinsurance and catastrophe bonds has helped to push down rates.
Another factor is the lack of major landfalling hurricanes in recent years, particularly in Florida, with claims having declined reinsurers have been able to pass on savings to their insurer customers. Now those savings are beginning to trickle down, although it is just the one case in Louisiana with LA Citizens and now one in Florida that have so far been publicised.
Security First Insurance, one of the largest private property insurers in Florida with around 105,000 customers across northeast, central and southwest Florida, notified state regulators that it will lower its rates by an average of 9.3% across Florida. Security First cited the lower cost of its reinsurance as a major contributing factors, alongside a lower claims experience across non-hurricane wind claims.
The cuts will be especially welcome to Security First Insurance’s policyholders in hurricane exposed coastal states such as Palm Beach and Broward counties where homeowners property insurance can be particularly costly.
“Major reductions in reinsurance costs and changes in Florida law have significantly reduced the cost of providing homeowners insurance coverage in Florida,” commented Locke Burt, president of Security First Insurance.
With most of the reinsurance market expecting a continued influx of alternative capital into the reinsurance market, particularly property catastrophe, at the upcoming January renewals and the market expecting further reductions in rates if there are no major catastrophe losses between now and then, it will be interesting to see how many other insurers pass on savings.
Reinsurance capacity sourced from third-party capital market investors is driving much of the reinsurance rate reductions, particularly in states like Florida, and with rates expected to stay down for the forseeable, loss-free future, consumers and buyers of property insurance may find their next renewal bills a little lighter.
Of course there could be a downside for those insurers willing to cut rates too quickly. Where a major hurricane to come ashore in Florida they could find themselves with lower premium income to pay for a hike in reinsurance rates after a major event.
However a strong reinsurance rate rise is not certain to happen, even after an event, as the availability of alternative capital to reinsurers and insurance-linked security specialists is not expected to diminish meaning that rates may stay lower than the historical post-hurricane levels.