In a positive turn of events for the Florida reinsurance market, industry analysts from investment bank Berenberg have reported that the market is experiencing strong rate momentum and renewed interest from reinsurers.
The current rate increases and expected profitability have attracted players such as Berkshire Hathaway, DE Shaw, Ariel Re, and Arch, indicating a vote of confidence in the market’s future.
The analysts highlight the impact of recent legislative reforms in Florida, which are expected to create an improved loss-cost environment. The state’s historically high litigiousness has resulted in a dislocated property insurance market, with Florida accounting for a significant portion of the nation’s homeowners claims and insurance lawsuits.
However, the reforms are believed to address these issues, making the (re)insurance market in the hurricane-prone state more sustainable.
The Reinsurance Over Line (ROL) for layers below the Florida Hurricane Catastrophe Fund (FHCF) has been reported to exceed 100% in some cases on a pre-paid reinstatement basis.
This means that reinsurers cannot incur losses unless a second hurricane makes landfall. Furthermore, rate increases have been substantial, ranging from 70-80% on second and third layers to 8-12% on top layers.
Berenberg analysts predict that the strong momentum will continue into the July 2023 renewals and into 2024 due to demand-supply dislocation. While rates are expected to remain firm in 2024, the rate of growth may decelerate compared to the steep uplift witnessed in 2023.
However, sustaining the current high level of pricing for the next 12-24 months would be viewed positively.
A clean natural-catastrophe season in 2024 is believed to be likely to accelerate the inflow of traditional and alternative capital during the renewals that year.
Despite some signs of easing supply crunch, with approximately $8 billion in alternative capital and $1.5 billion in equity raised year-to-date, the influx of new capital seems to be mitigating the increased demand for reinsurance rather than undermining the strong rate momentum.
Regarding alternative capital and insurance-linked securities (ILS), sources indicate that most of the money flowing into the sector comes from specialists rather than generalists, including pension and endowment funds.
Generalist investors seem to be adopting a wait-and-see approach, preferring to observe more evidence of the adequacy of the new pricing levels before re-entering the market.
