Major insurers in Florida and elsewhere that are renewing reinsurance programs for June 1, 2021 are expected to emerge largely unscathed from the renewal season as reinsurance prices have weakened and are below expectations, JMP Securities analysts confirmed. .
As a result, analysts say some insurers dodged a bullet, as reinsurance pricing and renewal terms could have and perhaps should have been much worse for them, considering their performance over the past few years. years of accident.
JMP Securities analysts reinforce what other teams have said, which is that renewals of real estate catastrophe reinsurance programs in Florida and elsewhere are expected to see their price drop below previously set expectations and that the renewal outcome will not. would not be as spectacular. as hoped.
The JMP Securities analyst team said after meeting with Bermudan reinsurers that there is general sentiment that renewals have been ordered, but that rate hikes will be smaller than expected, due to reduced demand and excess supply of capital.
The JMP analyst team describes the June reinsurance renewal rate environment as “modest” with a range going from flat to + 5% for the best performing cedants and from + 8% to + 12% for those who did not perform as well.
This is “a spread which we believe should be larger given the history of the past few years,” analysts explained.
Adding this, “In the end, major insurers appear to have come out relatively unscathed from the renewal – rightly for some, but luckily dodging a bullet for others.”
Thus, while the best performing primary insurers have once again achieved differentiated pricing during reinsurance renewals, the gap between the worst performing carriers is not wide enough, analysts believe and it seems that these less Top performers have perhaps taken the most advantage of excess capacity and appetite in the market.
“While there was broad agreement among our discussions that the best operators see better prices / terms and those who have consistently underperformed face less capacity and higher prices, especially on the lower strata affected by the losses, it doesn’t seem like the chasm is very wide – but we think the results of the last few years suggest it should be, ”analysts explained.
As a result, the differentiation only appears modest, leading some insurers to “dodge a bullet” because their renewal price may have been higher, analysts suggest.
Interestingly, the analyst team at JMP Securities, perhaps unknowingly, points to the need for a better way to clarify reinsurance programs and set prices based on actual appetite for. the risk.
They say, “One of the reasons could be that brokers underestimated the amount of capital in the market, eager to improve the quality of the insurers they support and came out with firm order terms that were not. quite aggressive. We heard about a “high quality” account that went to market at + 5% only to be subscribed at 160%. Could this account have filled its program flat? Maybe, but we’ll never know.
Taking a different technological approach to placing and clearing reinsurance program renewals could have given this important price feedback and resulted in a better outcome for the carrier, while using reinsurance capital more efficiently and enabling reinsurance capital to be more efficient. reinsurers to actually express their risk appetite more clearly. , perhaps.
Part of the problem with reinsurance renewals in Florida this year is that a number of insurers have reduced their total insured value (TIV), adjusting their portfolios to compensate for the reduction and erosion of surplus in some cases. .
“Several primary insurers with concentrated exposure to coastal areas have experienced a very difficult period in 2021 which has left them in an under-capitalized position. With many already heavily leveraged and equity only an option for the small handful of public companies (many of which are currently trading well below their book value), many have sought to get rid of the TIV (total insured value) in order to reduce the capital requirements ”. analysts said.
The result has been reduced demand at the upper levels of reinsurance towers for these smaller carriers, which of course is the area of the market where many insurance related securities funds (ILSs) have become more concentrated.
As we’ve been explaining for the past few months, the price of catastrophe bonds was the first to soften this year (with multiples returning to 2019 levels), followed by industry loss guarantees (ILW), and JMP analysts quote, “An active bond market cat, which has been a headwind for pricing in these upper strata. “
But, as we also explained, guaranteed reinsurance renewals have not been subject to year-over-year easing, rather following the traditional market and making gains on most accounts, it seems.
It is possible that the market has also seen excess capital downward from the upper strata which has seen so much demand from writers, resulting in more capital targeting the lower strata as well and helping the writers. underperforming insurers to dodge the bullet more. punitive renewal rates this year.
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