The high levels of stress on primary insurers in the Florida property market is likely to continue, and those with a heavy reliance on reinsurance protection face difficult choices at the upcoming June renewals, according to analysts at A.M. Best.
Analysts note an expectation of reinsurance rate rises of between 15% to 20% at the June renewals season.
Insurers in Florida spend a fair amount on reinsurance protection given the region’s high exposure to hurricane risks, and for the more thinly capitalised players in the market, analysts warn that rising reinsurance costs could add pressure.
Despite the 2019 Atlantic hurricane season being relatively benign, loss creep from prior year events continues to have an impact on reinsurers, which A.M. Best says is likely to result in rate rises at the Florida renewals.
Loss creep has in part been influenced by social inflation trends in the region, which in turn has driven unfavourable prior year reserve development from an increase in loss frequency and severity, says the ratings agency.
“Rising reinsurance costs have the potential to pressure some of the more thinly capitalized Florida-specific companies in the market…Reinsurance dependence, as measured by unaffiliated ceded written premium to policyholder’s surplus, exceeds 100% for all but four of the 25 companies listed, indicating elevated sensitivity to the changing reinsurance environment,” says A.M. Best.
Ultimately, analysts warn that elevated reinsurance rates might pressure earnings if firms decide to continue writing business at existing levels. Those companies that decide to retain more business, and purchase less reinsurance, might well see capital levels decline in the event of a catastrophic storm.
A.M. Best warns that the “considerable stress” on primary players in the property market is likely to persist, especially for those that have failed to effectively navigate the complex marketplace.
“Accordingly, there is a good chance that continued weakened balance sheet strength will spur additional consolidation and, in some cases, require additional capital support to sustain operations,” says A.M. Best.
