The global reinsurance market could take “several years” to regain its confidence in Florida and appetite to underwrite more business there, as uncertainty remains over how effective recent property insurance reforms will be, according to analysts at KBW.
After a particularly challenging Florida reinsurance renewal at June 1st, that still continues for some as they look to fill out the rest of their towers, KBW’s analysts cautioned that the states issues with attracting reinsurance capital may not go away anytime soon.
Despite the reforms passed by legislators in recent weeks, many are suggesting more is required and urgently to stem the litigious environment in Florida’s property insurance sector.
However, some reinsurance executives are optimistic about the potential for the reforms to have a beneficial effect on the market.
The questions really are, how much of an effect and how soon will the benefits be felt by those deploying reinsurance capital into Florida.
But, with broad skepticism reported across the reinsurance market after the reforms were passed, several major reinsurers are still refusing to write business in the state and the challenges insurers face in gaining sufficient coverage remain.
KBW said that in discussing the market with its Bermuda contacts, one executive said they had seen reinsurers “renege” on signed deals for the first time in their nearly 50 year career.
The Bermudian reinsurance firms KBW analyses are “generally averse to assuming more Florida property catastrophe exposure,” the analyst team wrote.
But adding that, “The persistent capacity shortfall and accompanying rate increases should materially boost expected returns on the catastrophe reinsurance business that they do write.”
While more property insurance reform seems inevitable, as so many are stating that the reforms passed aren’t sufficient and won’t stem the tide of litigious claims in Florida, KBW’s analysts are hopeful.
“In the medium- to long-term, the Florida property market’s current distress could also drive litigation reform that could re-attract reinsurers to the state,” they explained.
But qualified this statement by writing, “But we expect it to take several years for the cohort to regain its confidence in the state.”
So Floridian insurers should not expect reinsurance rates to come down at any pace and the current hard market may persist, as we explained last week.
Florida’s insurance firms need access to efficient reinsurance capital at reasonable prices, in order to become more profitable.
This need is inly going to grow with the effects of climate change, it would seem, while the forecasts for an active hurricane season suggest further losses may not be far away for Florida’s insurance community, something that could harden the market even more.
As a result, lawmakers need to seriously consider whether they can fast-track additional reforms to help Florida’s insurance marker regain the confidence of global reinsurers and insurance-linked securities (ILS) investors.
Without them, the going may only get more challenging for carriers in the state and reinsurers may just get more risk averse to Florida catastrophe exposure.
Read our coverage of Florida’s property insurance crisis below: