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Insurer in Full: Crunch time for Florida…

1 June renewal deadline fast approaches with many programs still unfinished...

Indeed, the reality is that many placements will remain incomplete come Wednesday (1 June) when the 2022 North Atlantic hurricane season officially begins. The retrenchment of traditional market leaders such as Everest Re, RenaissanceRe, Swiss Re and PartnerRe together with ILS funds like Nephila means there simply isn’t sufficient cat capacity available at a price which makes economic sense to the already-stretched domestic homeowners insurers in the Sunshine State. The Q1 investor calls earlier this year made it clear those sources of reinsurance capacity were cutting back regardless of rate.

The political reforms rushed through last week were welcome but still regarded as too little, too late. Perhaps markets of last resort – Berkshire Hathaway and DE Shaw – may help clear some placements in the home stretch of the renewal, but in most cases the reality is their quotes would already have been accepted. Neither are going to reduce their terms at the witching hour – indeed, if anything their prices will rise.

The political reforms rushed through last week were welcome but still regarded as too little, too late

A key actor in this unfolding drama is Demotech, which is the sole rating agency for many of the Florida specialist homeowners insurers. How will it react to thinly capitalised carriers entering the 2022 hurricane season without sufficient cover? For some, this can surely only mean one thing – downgrade or removal of rating. Demotech has already acted on a number of carriers in 2022, including St Johns and Avatar.

Demotech’s president Joe Petrelli told this publication last week that it cannot rate carriers that do not meet its reinsurance requirements, so those with gaps in the vertical and horizontal cover will know what is coming.

But while it appears these are inevitable, the timing is less predictable. Will it be later this week, immediately post-renewal, or will Petrelli give a period of grace? We expect the latter but it will surely be measured in days not weeks.

If the global cat reinsurance market is $40bn in annual premiums, it’s fair to say Florida alone is responsible for $12bn-$15bn

Sources have suggested in recent days that the action – or arguably inaction – of the legislature in Florida is tantamount to an acknowledgment that a proportion of the carriers providing homeowners insurance in the state will be allowed to fail. It seems likely that reinsurers will pull authorisations from those that don’t look like getting close to completion on their placements, which could help some of those that have made better progress get over the line as limit is reallocated.

The outcome of the Florida renewal is a big issue for the global reinsurance industry. If the global cat reinsurance market is $40bn in annual premiums, it’s fair to say Florida alone is responsible for $12bn-$15bn. In other words, it is still the largest peak zone market in the world when measured by premiums.

But it has also been responsible for brutal losses over the past five years – without “the big one” hitting. This year, reinsurers have responded with tough actions not feeble words. The outcome is the toughest crunch for a decade…

 

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