Florida – “The theatre is on fire,” FHCF change won’t solve it: RenRe CEO

Commenting on the potential for legislative reform in the challenged property insurance market of Florida, RenaissanceRe CEO Kevin O’Donnell remarked that a reduction in the FHCF attachment point will change nothing for his reinsurance firm’s view of risk in the state.

Speaking during the RenaissanceRe (RenRe) first-quarter 2022 earnings call, O’Donnell highlighted the dysfunctional Florida property insurance market, saying his company has lowered its appetite for underwriting reinsurance in the state.

“I don’t think I’ve ever successfully forecast what’s going to happen to the Florida legislature. I know it’s being discussed, in particular, the drop in the FHCF by the drop down in attachment.

“That doesn’t change, from RenRe’s perspective, that makes no change in what we do or how we’re looking at the market,” the CEO explained.

It’s an interesting comment when it now transpires that some primary carrier ceding companies operating in Florida are now waiting out the end of May special legislative session in the hope they can secure better reinsurance pricing after that.

A drop in the level of attachment of coverage from the Florida Hurricane Catastrophe Fund (FHCF) has been mooted as one of the reforms on the table, but as we’ve been explaining it is really the litigation and fraudulent claims crisis that Florida’s lawmakers need to solve, in order to get reinsurance capacity back into the state.

At one stage, RenRe was one of the biggest underwriters of Florida reinsurance programs, but in recent years the company has reduced its appetite in the state.

In advance of these renewals, RenRe explained in a report, “We continue to carefully monitor ongoing, adverse trends in the Florida market with respect to claims practices, litigation risks, and exposure growth, and are prepared to continue to reduce our exposure to risks and accounts exposed to these trends.”

During this week’s earnings call, RenRe CEO O’Donnell underscored this approach by saying, “With respect to Florida, even with rate increases, we are unlikely to increase offered limits at the June 1st renewal.

“Florida has a social inflation problem that can’t be solved by rate, because it is ultimately impossible to know how much to charge to cover fraud.”

Continuing to explain, “It now also has a capacity problem, due to reduced third-party capital appetite, limited retro availability, and severe financial distress at many domestic Florida insurers.”

That’s not to say RenRe wouldn’t be interested in writing more business in Florida. It would, but needs to see meaningful reform before it will deploy more of its reinsurance capital, or its partners third-party capital, there.

“We know this market well and could be substantially more interested in taking additional risk, if Florida’s long-term structural problems were addressed,” O’Donnell said. Adding that, “Over the last several years, we have steadily reduced our exposure to the Florida domestic homeowners’ market and it now represents about 2.5% of our gross written premium.”

As a result, while many still see Florida as a core state for their reinsurance books, for RenRe it is much less important that it used to be.

“Consequently, the ultimate outcome of the Florida renewal is of diminishing consequence to us, relative to several years ago,” O’Donnell said.

Thinking about the upcoming reinsurance renewals, RenRe will focus on improving the quality and performance of its US wind exposed book of business, O’Donnell said.

“Were not that interested in the Florida market, but we do have a lot of southeast Atlantic hurricane risk, which come in through different ways.