Accelerated rate reductions at Florida P&C reinsurance renewals

Reinsurance rates for Florida’s property and casualty (P&C) business fell for the sixth year at 1 June renewals, with the amount of reductions higher than the previous year, according to analysis from JLT Re. The broker said excess capacity and competition between traditional reinsurers and insurance-linked securities (ILS) markets were the main drivers for the continued depression in reinsurance rates. JLT Re said ILS players deployed capital with “renewed vigour” to increase their presence and in particular were keen to target stronger performing cedents. The broker’s index that tracks Florida P&C rates recorded a fall of 5.1% this year, against an average fall of 3.1% in 2016. JLT Re said Florida’s insurance rates are now 40% lower than in 2012. JLT Re said its analysis found some cedents secured more favourable terms and pricing varied more than usual. Bob Betz, executive vice-president at JLT Re in North America, said: “While the pace of average rate reductions accelerated at 1 June 2017 compared to last year, the results were very much determined by cedent size and performance.” He added that the Florida insurance market has been difficult during the past 18 months, with 40% of state insurers reporting underwriting losses in the first quarter of 2017. “More intense competition for cedents with a stronger track record saw risk-adjusted pricing typically fall within a range of flat to down 10% at 1 June 2017. But even here, results were often layer specific, reflecting historical performance, loss activity and terms and conditions,” Mr Betz said. JLT Re said retrocession pricing levels were also down at 1 June. Demand for retrocession cover remained strong, the broker said, but excess capacity and an absence of losses caused rates to fall by mid-single-digit percentages, JLT Re said. David Flandro, global head of analytics at JLT Re, said: “Despite elevated loss experiences, reserving volatility, inflationary and interest rate concerns and declining reinsurer returns manifesting so far this year, excess sector capital continues to drive the market. Surplus capacity is enabling cedents to negotiate discounts to expiring reinsurance rates, although renewal outcomes at 1 June 2017 were very much swayed by cedent performance and size.” JLT Re estimated reinsurance capital totalled $325bn at the end of the first quarter 2017, up from $321bn at the close of 2016. “The result is a reinsurance market awash with capacity as supply continues to exceed demand,” JLT Re said. Ed Hochberg, CEO for JLT Re in North America, said the US had a lucky escape with Hurricane Matthew last year. “The return time of an 11-year stretch without a major hurricane landfall across the US coastline is in excess of 300 years, reminding us that such good fortune cannot go on forever. In fact, some forecasts now indicate the 2017 north Atlantic hurricane season could see above-average activity,” Mr Hochberg said.

Accelerated rate reductions at Florida P&C reinsurance renewals

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