Nicolas Papadopoulo, Chief Executive Officer (CEO) of Bermuda-based insurer and reinsurer Arch Capital Group, said today that he expects the upcoming Florida reinsurance renewal season to be more flattish than what was seen at the April renewals, with additional demand from clients.
Arch released a strong set of results yesterday despite the impacts of the costly wildfires in California, with premium growth in both its reinsurance and insurance segments, and a group-wide combined ratio of 90.1%.
Today, executives held an earnings call with analysts, during which the mid-year renewals, and especially the Florida market, was a key topic.
“As we look towards mid-year renewals, particularly with coverage in Florida and the Gulf, we expect additional demand from existing and new clients,” said CEO Papadopoulo in his opening remarks. “On the supply side, it is worth noting that for many reinsurers and the ILS funds, this zone represents peak exposure. As a result, significant additional capacity may be harder to come by, even if the market is more competitive on the margin.”
During the Q&A, when quizzed on the mid-year renewal outlook, Papadopoulo explained that as Arch sees it, and for the reasons mentioned above, the Florida market outlook is “pretty flattish.”
“We like the business. We don’t know, but if our teams find opportunities to grow, and we expect more demand in the marketplace, for several reasons. I think the FHCF is raising their retention by a billion and a half. And we see more cedents wanting to increase their limits, things that they haven’t been able to do in the last few years because of the lack of capacity. So, we think an opportunity to potentially do more, if the rates hold up,” he said.
In terms of pricing at the key mid-year renewals, the CEO noted the Japan-focused April 1st renewals and the fact rates were down in the single digits, in most instances, with perhaps a slightly steeper decline in Japan as a result of one participant buying less coverage.
“But I think the dynamic in Florida is, as I said in my remarks, a little different, because it’s a peak zone for most markets. The dynamic is people like the top layers, but there’s not that many top layers, and people didn’t like the bottom of the program.
“And what we’ve seen in the past, and we’re seeing still today, is bottom of the programs which have been impacted by the loss last year, the hurricane last year, Milton, we’d expect those probably to see some price increase. But would that be compensated by price decreases at the top of the program? I don’t know,” said Papadopoulo.
“That’s why, I think our view is, if things play out the way they should, which they never do, we expect something more flattish for Florida. And, at that point, we feel that based on our positioning, we should be able at least to keep our share of the programs that are buying more, and therefore, we may have opportunity to deploy more capital,” he continued.
At both the January and April 2025 renewals, overall, reinsurance prices came down when compared to last year’s renewals, but this is from a higher base after the reset in 2023.
Of course, catastrophe activity in Asia, Europe and elsewhere was more benign in 2024 than in the US, and given the magnitude of the California wildfire loss, it’s plausible that the softening seen at 1.1 and 1.4 isn’t repeated at the mid-year renewals. Only time will tell exactly what happens to rates as the market heads into the June and July renewals, but as highlighted by Arch’s leader, conditions could well be more favourable to sellers than the earlier 2025 reinsurance renewals.
