The mid-year renewals season saw continued softening of pricing in Florida with stable market demand, but pressure on traditional players is growing as they make a final push for 2017 premium targets, but are squeezed into a tighter space by greater alternative capital influx.
John Cavanagh, Global Chief Executive Officer (CEO) of Willis Re, said the continued softening was driven by the realization that, for the global reinsurance industry, “the June and July renewal seasons are the last realistic chance for underwriters to meet their 2017 premium targets.
“This was clearly seen in the Florida renewals where, in the face of flat demand, a larger than anticipated influx of capacity, particularly from Insurance Linked Securities (ILS) markets, led to not only a further drop in pricing from the 2016 renewals but at a greater pace, albeit slight, than the reductions seen on U.S. property catastrophe programs earlier this year.”
Willis Re said the year-on-year risk-adjusted price change for loss free programmes ranged from a decrease of 5%-10%, with catastrophe loss activity from events like hurricane Matthew, tornado and hail, impacting pricing on some lower layers.
On higher layers with lower rate-on-lines, some larger year-over-year risk-adjusted decreases were seen.
Willis Re said in the June – July Florida renewals reinsurers examined impact of specific issues blighting the state, such as the Assignment of Benefits (AOB) pandemic and also underlying geographic risks tied to surcharged portfolios.
Other trends highlighted by Willis Re include collateralized reinsurers looking to grow their portfolio driving significant demand for single shot capacity and reinsurers pushing to add sliding scales, loss corridors and deficit carry forwards into contracts.
Quota shares saw pressure on terms and conditions after loss ratios for last year weakened, however, the Florida market saw continued strong demand for per risk and casualty treaties.
The 2017 second-quarter renewals have been the sixth consecutive in which reinsurance rates have fallen, and while this creates a challenging market environment for reinsurers, whose market share has been squeezed by growing numbers of alternative capital investors entering the market, the Kroll Bond Rating Agency (KBRA) pointed out that these conditions have been a lifesaver for primary insurers.
Primary Florida insurers have struggled to maintain profitability with rising water-loss and fraudulent AOB claims, and thus have received a much-needed boost by catastrophe reinsurance availability being at an all-time high and pricing at or near its lowest point in decades in this year’s mid-year renewals.