The Florida insurance market is poised to experience a marked contrast during its June 1 renewal, characterised by an early and orderly process, according to JMP Securities.
However, the renewal will also bring significant price increases as the market seeks to stabilise and address ongoing challenges, the report noted. Industry experts indicate that a fair description of the renewal overall would be a rate increase ranging between 30% and 40%.
Attempting to secure pricing well below this level may result in a rapid reduction in available capacity. Pricing adjustments are expected to be milder for reputable cedants and lower layers that were already priced highly, whereas higher increases will be observed for lower-quality cedants or more remote upper layers with lower rates.
Sources suggest that major cedants have largely completed their renewal programs, leaving the remaining 10 days until the renewal date mainly for struggling lower-tier companies striving to fill their programs. This highlights the market’s difficulty in attracting sufficient capacity from reinsurers, JMP Securities explained.
The recent reforms implemented in Florida have captured the attention of the reinsurance industry, as they aim to address the challenging homeowners’ market conditions that have persisted in the state in recent years.
In May 2022, the legislature passed initial reforms, followed by more substantial changes in December. Key elements of the reforms include the elimination of one-way attorney fees, a reduction in the statute of limitations from two years to one year (previously reduced from three years to two years in the May reforms), and the elimination of assignment of benefits (AOBs).
Market analysts widely anticipate that these reforms will have a positive impact on reducing losses in the state, particularly by curbing the number of litigated and fraudulent claims. Florida currently accounts for approximately 10% of nationwide claims but a staggering 75% of related lawsuits.
Reinsurers, while not explicitly factoring in the reforms during this renewal, have expressed unanimous support for the regulatory changes.
There is optimism that the reforms will lead to substantial improvements in insurers’ results, although reinsurers prefer to observe tangible evidence before fully incorporating their effects into reinsurance programs.
Should the reforms prove successful, it could potentially exert downward pressure on pricing during next year’s June 1 renewal. However, it is expected that reinsurers will prioritise maintaining their margins even amidst any pricing adjustments.
