Speculation remains around the magnitude of rate movements at the mid-year 2019 reinsurance renewals, underpinned by the potential impact on pricing from recent legislation targeting assignment of benefits (AOB) abuse in the state of Florida, according to Jon Springer, the President and Chief Risk Officer (CRO) of Universal Insurance Holdings, Inc.
After a decade without a major landfalling hurricane, the state of Florida was hit by hurricane Irma in 2017 and then hurricane Michael in 2018, while other major storms, such as hurricane Harvey and Florence devastated other parts of the U.S.
Prior to the events of 2017, a prolonged softened reinsurance market state was seriously challenging the underwriting profitability of many market participants, with many hopeful of a meaningful post-event rate response.
However, the competitive market landscape, underpinned by a significant rise in the volume of alternative reinsurance capital, ensured rates failed to improve both meaningfully and sustainably, a trend which persisted through the year and into 2019, with the market noting a disappointing Jan 1st 2019 renewals period.
Market commentary from the recent April renewals has been somewhat more positive, although rate improvements are, for the most part, exclusive to loss-affected regions, such as Japan. The same is expected at the upcoming mid-year reinsurance renewals, where much of the loss-affected U.S. business is up for renewal.
Speaking during Universal Insurance’s Q1 2019 earnings call, President and CRO, Springer, provided an update on the reinsurance segment.
“Over the course of the past several months we’ve met face-to-face with the vast majority of our reinsurance partners, to discuss our experiences in hurricane Irma, hurricane Florence, and hurricane Michael, the difference in storms and the upcoming June 1 reinsurance renewal.
“There continues to be widespread speculation around the magnitude of change for catastrophe pricing at June 1, both in the Florida market as a whole, and how it relates to our specific program, including what form AOB legislation will take and that potential impact on reinsurance pricing,” said Springer.
The Florida Legislature recently passed a reform that aims to address assignment of benefits (AOB) abuse in the state, a move welcomed by Floridian insurers and reinsurers. However, it remains to be seen exactly how and when any reforms will positively impact reinsurance pricing in the region.
Universal states that its reinsurance partners have paid out catastrophe losses of almost $1 billion on its behalf in relation to the three major storms that hit the southeast U.S. in 2017 and 2018.
Springer explains that the firm started this renewal season with $365 million in open market catastrophe capacity, which it had already secured at predetermined pricing through prior multi-year deals.
Universal expects to receive almost $2 billion of capacity from the Florida Hurricane Catastrophe Fund (FHCF) at terms similar to last year, which leaves the company with less than 30% of its 2019-2020 reinsurance capacity to be renewed in the current market.
“The market pricing for the majority of this remaining first-event capacity has already been sent into the worldwide catastrophe reinsurance market for its proper subscription…All told, we are nearly 90% completed with our first-event tower, and will turn our attention to the supplemental parts of the program very soon.
“In summary, we designed a thoughtful strategic reinsurance program over the past several years, one which has afforded us the ability to provide stability throughout parts of the cyclical nature of the reinsurance market.
“In addition, we have created strong committed relationships with our reinsurance partners, while other forms of capacity entered the market place. We assess on a rolling basis the most cost-effective, stable approach to reinsurance, and we will continue to do so going forward,” said Springer.