The state-backed insurer is also due to assess options for cat bond pricing as it combines traditional and capital markets capacity in what is expected to be a record $5.5bn risk transfer program ahead of this year’s Atlantic hurricane season.
Up to $4.9bn of limit – above the $630mn sliver layer that sits alongside the Florida Hurricane Catastrophe Fund and including $500mn of capital markets protection from last year’s Lightning Re aggregate cover – will be sought from the traditional and ILS market, depending on pricing conditions and capacity
And yesterday, Citizens’ financial advisor Kapil Bhatia of Raymond James described a “positive undertone” in the global reinsurance market – especially the capital markets, which have been the source of a series of Everglades cat bond issuances by the insurer over the years.
Speaking to members of Citizens’ finance and investment committee ahead of today’s full board of governors meeting, Bhatia said the market has increased capacity with rates expected to be flat to down 5 percent depending on the cedant.
“So the reinsurance market is finally stable after four years of hardening. We are seeing not really softening, but relatively less hard. So we expect the reinsurance market to behave better for us as we place our program for the upcoming season,” he told the committee.
The comments come after 1 January and 1 April property cat renewals that saw conditions ease significantly for buyers amid plentiful traditional reinsurance capacity – albeit with discipline holding, especially in the area of higher retentions being maintained.
And the cat bond market continues to be attractive for cedants looking for capacity higher up programs – a dynamic which Citizens is likely to benefit from as it splits its placement between the traditional and capital markets.
In its update on the ILS market last week, Lane Financial described it as no longer hard but “decidedly average” as pricing reverts towards its mean.
The consultancy said that the mid- to high teens returns recorded by investors last year are unlikely to be sustained in 2024, based on multiples of forecast yield over expected losses.
Instead, returns are predicted to be in the 8-12 percent range this year.
That is still likely to be viewed as attractive by investors, however, and that means there should be a strong supply of ILS and traditional reinsurance capacity at the upcoming mid-year renewals.
Coupled with what look to be much improved operating conditions in Florida as carriers benefit from recently enacted legislative reform, all other things being equal that should make for a relatively straightforward process for Citizens and other buyers at 1 June...
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