Bermuda and Florida re/insurance market executives are optimistic about sustained rate increases at the upcoming June 1st, 2021 renewals, although lower year-on-year rises are expected as a result of reduced COVID-19-related fears and abundant insurance-linked securities (ILS) capacity, according to analysts at Keefe, Bruyette & Woods (KBW).
With the June and July reinsurance renewals fast-approaching, KBW has hosted a range of virtual meetings with executives from across the Bermuda and Florida re/insurance market.
After two days of talks, market sentiment points to mid-single digit property catastrophe rate increases, with property cat rises in Florida expected to come in below expectations.
According to KBW, the expectation from execs for lower year-on-year rate rises is in part attributable to much lower pandemic-related fears, abundant ILS capacity, and the improved profitability embedded within already compounding increases.
Although some of the execs were optimistic about sustained rate increases on the back of COVID-19, cyber risk, climate change, and casualty reserves, one did tell KBW that they expect Florida property rates to dwindle further in 2022 as a result of recently passed legislation in the state.
Additionally, “Mid-year quota share reinsurance conversations are reportedly focusing mostly on ceding commissions, as primary insurance policies largely already include tighter policy terms and conditions,” say analysts.
Looking specifically at the ILS market, KBW explains how historically, investors in this market rushed to the retrocessional market following large loss events. However, the heavy loss experience of 2017 through 2020 did put some retro investors off.
But while some retreated from the sector, others remained committed to the high-risk/high-reward retro market and as weather losses become more common, analysts note how ILS investors are being more disciplined overall.
“Many investors are focused on structuring products in strategic partnership (rather than in competition) with traditional reinsurers, driving a more efficient matching of capital and risk – amidst more formalized interaction processes – that probably underpins some reinsurers’ belief in their current portfolio’s “best-ever” return characteristics,” say analysts.