Things can only get better: “chaos” at mid-year renewals

It was never going to be easy. As Ariel Re’s vice president of property reinsurance Sarah Morgan (pictured, centre) told Intelligent Insurer, those going into the US mid-year renewals recognised that after years of softening from 2013 onwards, the tide had turned in the last few renewals.

“We knew going in that it would be a hard market,” said Morgan. “But we didn’t expect how hard it would become.”

In fact, it was extremely hard, and the renewals were almost unprecedented. “The June 1 renewal was one of the most challenging we’ve ever faced,” she said.

While the re/insurer usually took market terms in the past, this year it saw lots of private pricing and programmes struggling to finish. “We basically had brokers asking us to write programmes at whatever price or conditions we wanted,” she explained.

This was particularly the case for Florida. “In the past, we had major price increases only if it was loss-affected, but this year we saw major increases regardless if it was in Florida.”

Credit risk to the fore

That was driven by several factors. Prime among them was the increased credit risk following the failures of companies such as Lighthouse Property Insurance, Avatar Property Insurance and St John’s Insurance Company.

There’s been a “flight to quality”, said Morgan, with reinsurers looking for insurers that are more “credit stable”. That’s particularly so given a “squeeze” on retro in the property market. “It’s made us think twice about what we want to write to make it worthwhile doing it on the retro side,” she added.

Even where the business was written, there were significant changes in terms. That included shifting from traditional quarterly premium payments to requiring a third, a half or even the total premium upfront.

“We were trying to get as much money as we could upfront prior to the wind season so we didn’t have to invoke any offset clauses or have issues with premium payment if there are any claims,” she said.

Other changes included shifting to named perils, either covering only named storms or restricting cover to specific regions to eliminate attritional losses from other wind events. Thanks to Russia’s invasion of Ukraine, policies also started to include sanction clauses.

“There have been quite a few changes we haven’t seen in the past,” said Morgan.

For Ariel Re, at least, that didn’t mean there was a shortage of capacity, according to Morgan.

“We didn’t have a shortage of capacity; we had a shortage of patience on things we didn’t want to write,” she said.

Looking up?

Fortunately, the July 1 renewals will not be as fraught, Morgan said. For Ariel Re, the bulk of its mid-year property renewals were done at the beginning of June.

More generally, the market won’t face so much uncertainty. An irony of the recent renewals is that the chaos was heightened by government attempts to help the industry. Governor Ron DeSantis’s call for a special session of the Florida Legislature in late April threw the market into confusion.

The session, which started May 23, resulted in several changes, including the Reinsurance to Assist Policyholders programme, enabling insurers to obtain reimbursement for hurricane losses earlier under the Florida Hurricane Catastrophe Fund.

In the longer term, it could prove helpful in limiting losses for insurers, even if any savings insurers achieved on their reinsurance programmes have to be passed onto policyholders—“one step forward, two steps back”, remarked Morgan. The short-term impact, however, was more profound.

“It threw a lot of companies into flux in the last few days of the renewal as they tried to incorporate this new layer into the programme,” she explained.

The result, said Morgan, was “probably the most chaotic renewal season a lot of people in the industry ever experienced”.

“Post June 1, we’re still getting calls from brokers trying to finish programmes, she added.

Going forward, towards July and the 1/1 renewals, the market will hopefully not face such last-minute changes, and it will also have a clearer idea of the new provisions’ impact. That’s not to say there won’t be challenges, however.

Continuing battles with inflation and the hurricane season lie ahead, and the coming months will reveal how justified concerns over creditworthiness prove. By the time meetings begin for January renewals in September or October, there should be more clarity, but there will still be no shortage of issues to work through, Morgan suggested.

As she put it: “There’ll be quite a lot to talk about.”