Reinsurance rate renewals to rise, not expected to reach post-Katrina levels

In a few extreme cases, analysts expect Florida reinsurance rate renewals to come close to those seen in the post-Katrina market, though they expect significantly higher rates overall.

KBW analysts, meeting with market representatives shortly before the June 1 reinsurance renewal, said the market is facing “significant rate increases following years of significant (and initially underestimated) losses, combined with elevated risk sensitivity and likely lower deployable capital,” Artemis reported.

Carriers can anticipate reinsurance renewal rate hikes of about 20%, KBW told Artemis. But a few areas will see even higher increases.

Still, carriers shouldn’t have to worry about the increases matching the post-Katrina days.

“We don’t expect aggregated rate increases to replicate the post-Katrina era’s widespread 50-70% rate increases, but we expect average increases of 20% or higher,” the analysts told Artemis.

The record of a cedent’s loss development, if it has adequate capital and the extent of its exposure to the tri-county area where most litigation occurs, may result in much higher than average increases.

KBW analysts told Artemis some insurance carriers heard about rate hikes between 30% and 50%, while those with vulnerability had to decide on 75% or higher increases in a day.

Reinsurers look for books diversified across several states while being light in the tri-county area. Insurers look for quality in their reinsurance partners.

“Our understanding is that there is enough capacity in the market to expect almost all programs to be filled more or less on time, which seems broadly consistent with several CEOs noting generally stable reinsurance panels,” the analysts told Artemis.

Florida Citizens CFO said pricing wasn’t appropriate to enter into multi-year cat bond coverage as its pricing was irrational, Artemis reported. This followed pricing on its recent catastrophe bond jump and a big piece of the issuance was withdrawn, with Artemis saying it was likely placed with collateralized or traditional markets.