Florida reinsurance market still not well priced: Swiss Re leadership

Global reinsurance giant Swiss Re continues to maintain an underweight stance to the Florida marketplace, feeling that rates remain too low and that state intervention is not helping, when what is needed is price transparency, the firm’s leadership recently explained.

A quarter ago, Swiss Re CFO John Dacey had explained that with the mid-year reinsurance renewals approaching, the company was unlikely to expand its underwriting in Florida and lacks optimism on the potential for pricing to rise adequately.

Now, with those challenging renewals behind the reinsurance market, Swiss Re’s view hasn’t changed and pricing is still deemed unattractive, in the main.

Speaking during the Swiss Re second-quarter 2022 earnings call, CFO Dacey took up the same topic again.

“On Florida specifically, the market largely renews in June every year. We do write business there, but we think the market remains not well priced, so we remain underweight in that market,” he stated.

This led to quite a long discussion about the need for price transparency and the importance for a functioning marketplace to send important pricing signals for the risk, to enable it to be sustainably underwritten.

Dacey explained, “The response that you’ve seen recently is a larger role for the state government and our view is that non-economic environments are not sustainable over the long term.

“We’ve been trying to help the market price these risks appropriately, by sharing the data that we have for our own models of hurricane losses, in not just Florida but literally around the world. A number of jurisdictions and clients work very well with us there.

“I think the Florida market is one which resists the unfortunate reality that the potential damage, largely because of the high level of new assets and expanded asset values are potentially in the path of a hurricane, will be larger than what they’ve seen in the past.

“So these losses will grow as much by the the asset values as by any new view of the actual risk of hurricane formations and or hurricane wind speeds.”

Swiss Re’s CEO Christian Mumenthaler also shared his views on the important role reinsurers play in the market in transmitting price signals on natural catastrophe risks.

“I think we shouldn’t forget that one of the key elements of what reinsurance bring to society is to price the risk and to give pricing signals,” Mumenthaler said.

Adding that, “The healthy way to react to that would of course be to minimise risk and for the benefit of the overall population, it is actually possible to minimise risk through building codes, for building in different ways.

“I think Florida for many, many years has been a bit of a deviation from that norm, which we see mostly around the world and where there’s a political, there’s no acceptance of these market prices and you know, new constructions are being created which are not sustainable.”

Referring back to Florida, Mumenthaler said, “But I think it’s really the exception across the world,” adding he doesn’t see a general trend in this direction.

Dacey further stressed the importance of these price signals and how they can make communities and governments think about risk and how to manage it.

“I think, as a reinsurer, we continue to try to bring transparency to the market about what prices are required, about what the real risk is.

“In some cases, this has a positive impact on people thinking about reducing risks, about taking important adjustments to for example, building codes to make structures more resilient, to reduce the risks of wildfires, to understand how major infrastructure may actually create unexpected problems with flooding,” Dacey said.

Adding that, “In all these cases, our models can be very helpful to communities, to governments, to think through how to better prepare urban areas, specifically, but more broadly, for geographies to be more resilient in the face of what are large losses.”

Mumenthaler added, “If you go to much poorer countries, then it makes sense that we work through states. We do that in many countries, where we help basically wherever the state or state-owned insurance companies have the access to policyholders and we can support them by that. I think that’s perfectly fine.

“But in the end, I think it’s important to get these price signals, because they’re just healthier for society.”

These are all great points and the role of reinsurers in providing risk related price signals and help to mitigate risks, to reduce them, and finance the losses that can occur is clear.

But in Florida, the ability of reinsurers to play this role has clearly been challenged, through the dysfunction in the marketplace and the litigation that has caused such significant claims inflation and loss creep.

If the legislature gets a real grip on litigation and fraud in the state, then perhaps Florida will be able to relinquish some of the state’s role in insurance and reinsurance, allowing the private market to do its job better, providing true price signals, based on the actual risks being underwritten and the appetite of capital to assume them, which might be a healthier solution for Florida’s citizens and its insurers.

Read all of our news and analysis on the Florida insurance and reinsurance market.

———————————————————————
Tickets are selling fast for Artemis London 2022, our first ILS conference in London. Sept 6th, 2022.