Executives speaking to Keefe, Bruyette, & Woods on the second day of its Bermuda tour have told the firm that rate increases in Florida property catastrophe reinsurance are set to accelerate.
According to the company, one executive said that average risk-adjusted rate increases were going to land somewhere between 20% and 30%.
It wrote: “The reinsurers of ‘last resort’ – including Berkshire, D.E. Shaw, and Chubb, who typically step in when no alternatives are available – are likely to fill last-minute holes in higher-quality accounts’ programs. Early expectations of reinsurance capacity mostly moving from lower to higher layers have evolved into the recognition of simply shrinking capacity; as an example, total global retrocessional limit has reportedly declined from $22bn several years ago to about $14bn currently.”
Other highlighted issues include most of the reinsurance and insurance executives viewing the Florida legislature’s recent special session as incomplete, given that it focused on elevated litigation, and that the renewal season beginning 1 June had bifurcated reinsurance buyers, separating the regional and national carriers.
Keefe, Bruyette, & Woods wrote: “The reinsurers now view the latter group much more positively, while taking more precautions on the former, including full up-front reinsurance premiums (versus previous quarterly payments, to avoid bad debt charges) that won’t be refunded if the primary carrier goes insolvent.”
However, the positive aspects were that many speaking to the firm said that the emergence of smaller reinsurance brokers was a positive development.
They wrote: “[…] the reinsurers would prefer to be less dependent on a small cadre of brokers, and Florida’s currently-challenging marketplace provides an opportunity for the smaller group to demonstrate their value as cedents struggle to fill reinsurance programs. Even assuming that the Florida legislature’s special session removes some premium from the private (i.e.; non-government) market, sustained overall demand and rising reinsurance rates should support solid revenue growth for the smaller brokers.”
