After conducting virtual field research in Florida, analysts at Keefe, Bruyette & Woods are expecting reinsurance pricing in the state to increase at least 20%.
One CEO reported hearing about 30-50% rate increases in the marketplace, with particularly vulnerable companies given only 24 hours to decide whether to accept 75%-plus rate increases.
Analysts did however caution against extrapolating from extreme examples, and generally don’t expect aggregated rate increases to replicate the post-Katrina era’s widespread 50-70% rate increases.
Analysts underlined how the existence of rising property catastrophe reinsurance rates pre-coronavirus reflects recent significant and recurring cat losses, as well as likely significant trapped capital stemming from uncertainty over industry wide exposure to business interruption losses.
Like past years, there’s an expectation that reinsurance rate increases should vary depending on the ceding companies’ individual loss and loss development experiences, overall capital adequacy, and exposure to the tri-county area seen as the most vulnerable to an aggressive trial bar.
As for capital, KBW considers uncertainty surrounding the industry’s ultimate exposure to COVID-19 underwriting losses as most pronounced among reinsurers that are at least one step removed from assessing individual policies’ language and exposure.
That uncertainty is likely to “trap” significant amounts of third-party capital, limiting reinsurance and retrocessional capacity available to support pending renewals.
Analysts’ understanding is that there is enough capacity in the market to expect almost all programs to be filled more or less on time, which seems broadly consistent with several CEOs noting generally stable reinsurance panels.
Commenting on Assignment of Benefits reforms, KBW analysts reported that most CEOs were optimistic about the potential to materially improve the Florida operating environment.
However some CEOs were cautious about whether shelter-in-place orders have only delayed, rather than permanently prevented lawsuit filings, with one suggesting that potentially huge perceived business interruption paydays could refocus the trial bar away from the Florida property insurers.