June 1 is the inception date for most contracts in the bellwether¬†Florida reinsurance market. Florida hurricane exposure is the most significant risk to many reinsurance companies and ILS funds. The¬†the mix of catastrophe risk, demographics and politics ensure an ever changing environment for insurance companies and their reinsurance partners.
Bevis Tetlow is the global Chair of North America for Hiscox Re. He has given InsuranceLinked his perspective on what has been going on¬†in the Florida reinsurance market over the last few months.
More than 10 years ago, Tetlow helped to establish Hiscox's Bermuda operation. This office¬†was part of the industry's efforts to recapitalise after the 2005 hurricanes. He recently discussed those¬†early days with InsuranceLinked's Adam Alvarez here.
What happened to Florida reinsurance prices at June 1?
The market has been reassuringly disciplined.¬† Pricing seems to have fallen by¬†between¬†0% to 5% - the smallest decrease for many years. The reinsurance market¬†continues to differentiate between¬†the various Floridian insurers and are prepared to accept thinner margins for the best run companies.¬† There have been a number of 'shortfall placements' where insurers had to pay higher premiums than planned, which is something I have not seen for a number of years.
How did programmes change since last year?
Floridan insurance companies have continued to grow their reinsurance programmes and many have brought more limit this year to support their increased exposures, particularly at more risk remote levels.
What has happened to terms and conditions over the last 12 months?
Contract terms haven‚Äôt seen much change year over year, with the coverage being offered remaining broadly the same.
What do Floridian companies think of cat bonds and collateralised reinsurance?
There are a few Floridian insurers¬†who utilize the cat bond market, but the majority of limit is still purchased on a traditional basis.¬† Collateralised reinsurance remains important, but some of the bigger players in that market seem to have deployed less limit into the reinsurance market this year.
What has been the effect of the public adjusters?
Every year there tends to be a theme with regards the issues of writing homeowners in Florida.¬† Previously it was sinkholes, but now that‚Äôs been fixed by legislation people have moved on to AOB (Assignment of Benefits).¬† This involves persuading the homeowner to assign their policy over to someone else who then inflates the claim for their own gain.¬† Companies with significant exposure to the tri-counties such as Citizens have seen their loss ratios impacted by AOB.
What is happening at the public insurer and reinsurer - Citizens and the FHCF?
Citizens has shrunk dramatically over the last couple of years, with a number of companies taking policies out of Citizens in ‚ÄėTake Outs‚Äô. ¬†They have bought less reinsurance this year as a result and continue to make extensive use of the cat bond market.
The state sponsored reinsurer - the FHCF - has continued to grow its reserves, but a number of Floridian companies elected to reduce the amount they purchased from the FHCF.¬† They have the option to purchase either 90%, 75%, or 45% of their FHCF limit.
David Altmaier has taken up the reins ¬†in April as the new Florida Insurance Commissioner.¬† Insurance rates often make the headlines in Florida so will likely always be affected by the politics of the day.
This chart from InsuranceLinked data shows recent cat bond issuance by Floridian insurers. One of the effects of the¬†successful¬†shrinking of Citizens has been a smaller¬†volume of Florida bonds for investors.
Posted: Monday, June 6th, 2016