Mid-year reinsurance renewal pricing moderates, but discipline to persist: Fitch

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With pricing moderated slightly at the mid-year reinsurance renewals, analysts at Fitch Ratings note that this shouldn’t be construed as softening, saying that terms and conditions are holding firm and discipline is expected to persist.

mid-year-reinsurance-renewalFitch Ratings said that the June and July reinsurance renewals in 2024 are in seeing rate movements that are in contrast to the hardening seen a year earlier.

“At the June/July midyear 2024 reinsurance renewals, pricing is moderating, with risk-adjusted rates generally flat to down slightly. This is in contrast to the 2023 renewals, when Florida property experienced 30%-40% rate rises for catastrophe loss hit business, reflecting the impact of Hurricane Ian in 2022,” the rating agency said.

But added that, “Terms and conditions are holding firm, with retentions steady and not returning to levels that provide earnings protection to cedents.”

As a result, the reinsurance market seems to be meeting the needs of cedents in Florida and beyond at this mid-year renewal season, albeit still at pricing and attachment levels higher than many would have liked to see.

But overall capital strength in the re/insurance industry remains high, Fitch says, which provides the sector “an ability to absorb near-term large insured losses from an individual hurricane or other catastrophic event.”

But the rating agency also noted that, pertinent for the coming hurricane season, “A confluence of large events in a short period may lead to capital reductions and rating pressure.”

Not every carrier is as well-capitalised though and Fitch also highlights the fact, “Florida specialty insurers’ capital tends to be weaker than that of their larger and national peers. Weakened capital positions at individual Florida specialists could be challenged in the event of a significant catastrophe year.”

Still, the global reinsurance and insurance-linked securities (ILS) markets support a significant portion of Florida exposures, which helps these carriers in the face of elevated losses.

Some loss affected accounts experienced rate increases in Florida at the June reinsurance renewals, signalling that the reinsurance and ILS markets still require an adequate return to deploy capacity there.

Capacity support is in fact growing, with Fitch explaining that, “Reinsurance and retrocession capacity to the Florida market are increasing from both traditional and ILS sources, including record issuances of catastrophe bonds, where spreads are at double-digits. This reflects favorable expected returns on property catastrophe risk following several rounds of price increases.”

The rating agency added that, “Even with the added capacity, Fitch expects the reinsurance market to maintain its discipline and support rate adequacy as catastrophe risk remains high with climate change concerns.”

Reinsurance demand proved to be particularly strong in Florida at the mid-year renewals, especially for the higher layers where catastrophe bonds have provided significant support.

Demand has risen thanks to growth at carriers, with depopulation from Citizens one source, as well as still rising exposure levels and the removal of some state-backed reinsurance layers in 2024.

Another factor is the improving Florida market environment, with recent legislative reforms seemingly having a positive effect.

Fitch said, “As a result, demand for reinsurance coverage increased at the June/July 2024 renewals, as Florida property specialists gain confidence in their ability to profitably offer property insurance.

“However, the financial benefit of the reforms needs to be proven out over time before it could pressure meaningful declines in reinsurance pricing.”

Read all of our reinsurance renewal coverage here.

Mid-year reinsurance renewal pricing moderates, but discipline to persist: Fitch was published by: www.Artemis.bm
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