Legal reforms in Florida aimed at curbing claims litigation prevented reinsurers from pulling more property-catastrophe coverage from the market at the upcoming June 1 renewal season.
Primary property carriers in the Sunshine State can still expect double-digit price increases, thanks in no small part to Hurricane Ian, and reinsurers are still treating the market with great caution. But fears of a widespread coverage shortage have abated.
"If no reform had been passed, I probably would be deploying a lot less capacity in Florida," Jim Williamson, Everest Re Group Ltd.'s COO and head of reinsurance, said in an interview.
Everest, which was among the top reinsurers in Florida in 2022 as measured by premiums primary carriers ceded to unaffiliated entities, expects to deploy a similar level of capacity to the state as it did last year. The company "might do a little bit more around the margins if the right deals at the right economics were to come our way," Williamson said.
While the lack of retrenchment may be "cold comfort" for primary insurers facing more price increases for reinsurance cover, the reforms at least mean the market can trade in an orderly way, Williamson said.
"Without [the reforms], I can't even begin to imagine what would be happening right now," the COO said.
Most Florida carriers successfully fill their reinsurance programs, according to Randy Fuller, a managing director at reinsurance broker Guy Carpenter & Co. LLC.
"The potential for widespread lack of capacity resulting in certain carriers not completing their programs had been a serious concern heading into the renewal, but this has not materialized on a broad basis," Fuller said in emailed comments.
But the reforms will only go so far this season. Reinsurers will want to see hard evidence they work before committing more capacity or reflecting the potential for lower claims costs in pricing.
Even if the new law fully represses the "endemic fraud and corruption" of frivolous claims lawsuits, it will take some time to work, Everest's Williamson said. The wait could lead to frustration as Florida homeowners may struggle to understand why the new laws did not have a more immediate effect on insurance prices, Williamson added.
Though litigation has played a big role in pushing claims costs up, so has increased building in the state and the outsize impacts of hurricanes.
"This is still somewhere that we need to treat with the utmost care and consideration," Nick Lazarus, senior reinsurance underwriter at Lloyd's insurer Inigo Ltd., said in an interview.
Inigo plans to deploy a similar coverage limit in Florida this season as it did last year, Lazarus said. Although Inigo is seeing greater risk-adjusted price increases in Florida than expected, "that isn't necessarily going to move materially the needle for us in terms of what it is that we're planning to do there," he said.
Prices up, drama down
Everest Re expects to put through Florida property-catastrophe reinsurance price increases that are "pretty consistent" with the previous year's 20- to 25-percentage-point rise for insurers that coped well with claims from Hurricane Ian, Williamson said. Increases could be more like 40 or 50 points for those that struggled with Ian claims, however.
On average, Fuller expects price increases of a similar magnitude or more than 2022 but sees a wide range of individual outcomes.
"This will be the fifth year in a row that Florida property catastrophe coverage has seen double-digit rate increases, so the compounded rate increases over time are quite significant," Fuller said.
Following the failures of several Florida insurers, reinsurers will also be keeping a keen eye on the credit quality of their ceding companies. Insurers that looked vulnerable may have had to pay 50% or 100% of the premium up front, rather than the usual practice of quarterly installments, said Craig Darling, executive vice president and office head of reinsurance broker Acrisure Re's Florida operation.
Overall the season is expected to go fairly smoothly. Reinsurers did a lot of heavy lifting in 2022, in particular raising the threshold at which catastrophe excess-of-loss cover pays out, known as the attachment point, in a bid to exclude as much cover for non-hurricane risks as possible. Fuller said attachment points should remain relatively stable; Williamson said he did not see the need for big adjustments to attachment points.
While prices have risen in response to Hurricane Ian, they are not "off the charts," Darling said.
"It has come in as expected and maybe more orderly than what we would have expected," he added.