Florida pendulum still with the reinsurers, but cautious optimism returns: AM Best

As the June 1st Florida reinsurance renewals come to their close, rating agency AM Best has said that it believes the pendulum remains “slanted toward reinsurers,” but also notes that some ground has been given, in terms of a less challenging renewals and moderated rate environment.

Howden Re reported yesterday that, by its measure, property catastrophe reinsurance rates averaged -5% down at the Florida focused June renewals.

Rating agency AM Best notes the “considerably high level of dependency” that Florida’s insurance industry has on global reinsurance capital in a new report.

Because of this dependency, Floridian carriers are exposed to fluctuations in reinsurance prices and terms, as well as the availability of coverage at different layers in their towers, all of which has been a significant challenge for insurers over the last couple of years.

Florida-focused personal property insurers reinsurance dependency “skews higher than the broader overall property segment,” AM Best explained.

Demonstrating how much higher their reinsurance dependency is, AM Best says that active Florida specialists, in the aggregate, have ceded reinsurance leverage of 514.7%, compared with its personal property composite average of 59.1%.

“While some of these primary insurers use reinsurance arrangements to generate income strategically through ceding commissions, a considerably high level of dependency can indicate greater sensitivity to changes in reinsurance pricing and availability,” the rating agency explained.

While the dependency remains very high, AM Best noted that conditions are better at the June reinsurance renewals this year, but still the reinsurance community remains in the driving seat in Florida.

“As we approach mid-year renewals, the pendulum remains slanted toward the reinsurers, but as the Florida specialist companies find balance, particularly with risk accumulations, it may provide better footing for negotiation for primary carrier,” AM Best explained.

The rating agency highlighted signals that Florida’s insurance market is improving, such as the filing of some rate reduction requests, which we reported on recently here.

Reinsurers are optimistic that the effects of recent legislative reforms will benefit them, but for now AM Best believes they are “in a wait-and-see stage as reinsurers appear to be keeping capacity steady for mid-year renewals.”

AM Best says it is “cautiously optimistic” on the Florida property insurance market.

“While still too early to declare a win in the Florida personal property market, the signals look promising. The legislative reforms and declining Citizens’ policies in force mark a step in the right direction. Time will tell if favorable market results will continue and effectively managing hurricane risk is an ongoing challenge,” the rating agency said.

Adding, “AM Best is cautiously optimistic about the overall state of the market and mid-year reinsurance renewals are expected to reflect some level of optimism in the overall marketplace.

“While there are signs of stabilization, sustaining these improving market conditions will be critical.”

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