Stonybrook Capital has reported that the current shortfall of limit placed by domestic Florida carriers for the renewal of June 1st, 2022, reinsurance programs is well over $10 billion, leading the firm to expect further downgrades in the opening weeks of next month.
With a plethora of issues facing the Florida market it’s long been expected that this June 1st renewals would be a particularly challenging one, notably for domestic players which rely heavily on reinsurance, which itself is reluctant to participate in a stressed marketplace.
While company and industry commentary in the coming days will undoubtedly provide a clearer picture, Stonybrook has offered an update on Florida market conditions ahead of June 1st.
“This week sees the sharpest reinsurance disruption for some carriers since at least 2006, and likely ever in their existence,” says the firm. “As Stonybrook advised clients in April, reinsurance and capital levels are extraordinarily stressed for many coastally-focused property carriers. We expect to see downgrades in the first two weeks of June.”
Given the state’s vulnerability to major storms, rating agencies and regulators have increasingly scrutinised coastal insurers exposure to catastrophes, a trend that’s accelerated on the back of consecutive heavy loss years for carriers.
This heightened volatility, coupled with rising litigation and fraud issues specific to the region, has seen numerous major reinsurers pull-back from the catastrophe space, and notably in Florida. This retraction from reinsurers, and also the fact rates have been on the up for buyers of protection in a hardening market, suggested this was going to be a late and tough renewals season.
In 2021, Stonybrook estimates that domestic homeowners insurers in Florida had placed well over $40 billion of catastrophe limit for the 2021 Atlantic Hurricane season.
“Market reports are that most domestic carriers have placed less than 80% of their required external placements prior to the Memorial Day weekend, and many far less than that. In one case, as of early Friday: zero. The current shortfall is well over $10B of unplaced limit. Their brokers are hard pressed for solutions,” says Stonybrook, a specialist strategic advisory and investment banking firm focused exclusively on the insurance and reinsurance industry.
The firm goes on to note that it’s aware of at least one large reinsurance company and one large catastrophe fund that are actively quoting new limits, albeit at unacceptable terms.
The reality, says Stonybrook, is that many incumbent global reinsurers are cutting back their Florida capacity “and have now totally filled their 2022 appetites.”
Of course, for brokers, the increasingly sophisticated insurance-linked securities (ILS) sector is an option, but as noted by Stonybrook, that market has also been challenged recently, by both uncertainty on ultimate losses and Florida AOB claims.
“Stonybrook’s discussions with Cat funds show that they saw this opportunity for a 2022 crunch early, raised additional capital during Q1 in response, and have already deployed that capital. They are now also done for this season,” says Stonybrook.
In an effort to reverse some of the pain, Florida legislature recently approved a number of reforms and, while welcomed, they’ve been described as not going far enough to tackle the issues plaguing the state.
“Stonybrook sees this season as an especially challenging market, but perhaps a unique opportunity for the intrepid.”
