Reinsurance News

Reinsurance rate increases to continue through 2021: KBW

22nd May 2020 - Author: Matt Sheehan

Analysts at KBW believe that reinsurance rate increases will be sustained at least through to January 2021, as reinsurers contend with higher retrocession costs.

increaseThe firm released its forecasts for the upcoming June and July renewals following a series of virtual meeting with Bermuda executives from two reinsurance brokers and four reinsurers.

KBW reported that the market is anticipating the Florida-focused June renewals to include average property catastrophe rate increases of 25-45%, reflecting years of rate decreases that only reversed last year.

Other factors include significant and poorly modelled actual losses, substantial trapped or withdrawn third-party capital, and COVID-19’s twin impacts on (re)insurers’ assets and liabilities.

Outside of Florida, southeast property catastrophe risks, which mostly renew in July, face 5-15% rate increases, according to KBW, while nationwide wind rates are rising by high single-digit percentages.

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Retrocessional reinsurance rates are also increasing 20-25%, compounding similarly sized increases during the January 2020 renewals, which analysts say is reflective of the trapped capital still in the market.

Along with the actual rate increases, most executives also reported significantly tighter terms and conditions, ranging from the widespread elimination of cascading features to explicit pandemic exclusions, with increasing consideration of named perils policies.

Additionally, several executives reported rapidly hardening primary casualty insurance rates that are being augmented by double-digit casualty reinsurance rate hikes.

This is in contrast to the U-shaped January renewals, where flat reinsurance rates accompanied increases in primary and retro, possibly due to COVID-19 induced fear in the market, combined with prior years’ rate decreases, worsening social inflation, and depressed reinvestment rate prospects.

However, KBW believes that both available capacity and expected rate increases will vary significantly by client, as existing divergences become clearer in the hard market conditions.

And despite recently introduced assignment of benefits (AoB) reforms, most reinsurers still view the Florida market as difficult and litigious, with newer loopholes expected to eventually emerge.

There is also some concern that some Floridian insurers will seek increased state participation to offset higher private reinsurance rates, probably through the Florida Hurricane Catastrophe Fund.

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