Reinsurance rates tempt first major players to deeper dive on Florida

Reinsurance rates could rise enough at the April and mid-year renewal deadlines to tempt the boldest reinsurers to increase their exposure to the much-watched but highly stressed Florida catastrophe market, reinsurance leaders signalled for a recent industry event.

“No one is seeing signs that capital is coming back into the sector, which should help pricing,” analysts at the brokerage arm of Wells Fargo said following a broad array of presentations at the three-day conference of the Association of Insurance and Financial Analysts (AIFA).

“They all still expect 6/1 will be a tough renewal season,” conference participants indicated during panel sessions.

Arch Capital leads the bull case for Florida at mid-year.

Arch Capital CEO Marc Grandisson argued that the hard market is no one-and-done price spike, but potentially a multi-year plateau buoyed by the abeyance of fresh capital. It’s not just the industry’s loosing track record and the upshot for ILS flows; its also investment limits across the investor field as the interest rate reset struck bond portfolios.

The upshot: Arch “pointed to adding to its exposure in Florida” if rate increases are “commensurate” with growth seen at the 1/1, Wells Fargo analysts reported in a research note to markets. Arch will additionally be scanning the market for opportunities to write “catch-up” business from cedents left short at the new year.

AIG reportedly admitted the possibility of heading further into Florida, but is conditioning any move on even steeper rate increases than seen at 1/1, but the Wells Fargo take made that sound base-case: AIG “said that they may not look to add to their Florida exposure if rates are not up 60-70%.”

Elsewhere, reinsurers sounded more circumspect. Everest Re likes the look and feel of recent legislative changes in Florida designed to cut down on the excess of litigation, but “do not think it will be enough to change the market,” Wells analysts said. Everest Re expects mid-year renewals will remain “challenging.”

RenaissanceRe sidesteps the question. RenRe will most likely not take on the risk via the Florida domestic insurers, but instead through nationwide covers that they write.

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