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Inflation hits against the reinsurance renewals for the property disaster



Concerns about inflation and reduced property disaster capacity made reinsurance renewals difficult and protracted on June 1, with many resigning insurance companies facing double-digit interest rate hikes, sources said.

“For Florida, we expect the rate hikes to easily be 30% or higher for those who can get business done,” said Brian Schneider, a Chicago-based senior executive at Fitch Ratings Inc.’s US insurance group.

The rise in inflation was an important factor in discussions about renewal, sources said.

“Probably the biggest topic of conversation in the reinsurance market this year is how people want to deal with inflation factors,” said Adam Schwebach, Tampa, Florida-based vice president and branch manager of Gallagher Re, the reinsurance brokerage unit of Arthur J. Gallagher & Co.

Florida̵

7;s reinsurance market is the most difficult since perhaps 2007, he said.

Renovation costs and home values ​​are rising, says Schwebach. “Everyone looks closely at what is added to property values ​​year after year so that reinsurers can be comfortable with valuations and limits.”

Capacity was also a problem as some reinsurers withdrew from the disaster reinsurance market. For example, Axis Capital Holdings Ltd. said in a recent report to the US Securities and Exchange Commission that they reduced their real estate disaster reinsurance business by 27% in the reinsurance renewals on April 1, following a 45% reduction in their real estate disaster reinsurance book at. January 1 renewals.

“During the January 1 renewals, in which we write more than 50% of our reinsurance business, we advanced our business goals to reduce volatility, allocate capital rigorously and produce the most optimized portfolio for the current market. As such, we took decisive action and lowered our reinsurance premiums for properties and properties by 45% “, said Axis CEO Albert Benchimol at the company’s profit call for the fourth quarter.

“We’ve really seen less capacity offered out there and the capacity offered is more selective,” Schneider said.

In RenaissanceRe Holdings Ltd’s earnings results for the first quarter on May 4, CEO Kevin O’Donnell said the reinsurer has steadily reduced its exposure in Florida. “In the case of Florida, even with these interest rate hikes, it is unlikely that we will increase the limits offered upon renewal on June 1,” he said. “In recent years, we have steadily reduced our exposure to the Florida homeowners market and it now represents about 2.5% of our gross income premium.”

“The strategy is to reduce as much volatility as they can,” said Christopher Grimes, a Chicago-based director at Fitch, about the reinsurance companies’ departure from Florida real estate disaster operations.

Although there are some newer reinsurers on the market, such as Bermuda-based Convex Ltd., which was founded in 2019 by industry veteran Stephen Catlin, “their size is not that large compared to the rest of the market,” Grimes said. and adds that even such new players are very selective in their deployment of boundaries.

Another factor in the renewals on 1 June was a lack of capacity in retrocessional markets, where reinsurers sometimes transfer risks from their own accounts.

“Now there is not much room in the retro market, so there is not much room to transfer that risk,” said Schneider.

As a turnaround for this renewal cycle, Florida Gov. Ron DeSantis signed a law on May 26 on property insurance reform that established, among other things, the $ 2 billion reinsurance assistance program that allocates reinsurance capital to insurers willing to give their policyholders premium deductions. which mainly creates new capacity in the reinsurance market.


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