Insurance Insider: Florida rates below expectations as late capacity flows in; average 15 percent hikes
May 29, 2009
With signs of early activity in the Gulf of Mexico, initial indications from the key 1.6 Florida renewals point to rate rises below expectations as new capacity entered the market.
The first tropical depression of the year formed yesterday – beating the official 1 June start to the North Atlantic hurricane season by four days – as brokers rushed to fill placements in a renewal season that started early and is heading for a late finish.
But despite warnings that the Florida renewal would be among the tightest in memory, as increased demand from a cut in limit available from the state’s cat fund was met by supply wary of managing aggregates and an increased cost of capital, the reality has seen generally adequate capacity with programmes successfully completed at lower than expected rate increases.
According to underwriting sources, fresh capacity from Continental European reinsurers – thought to include SCOR and the Paris arm of Liberty International – arrived late in the renewal process and helped soften the level of price increases.
“These guys are more than making up for Hannover Re stepping out of the business and are effectively in some cases providing more than $100mn of additional collective capacity to programmes.
“When you bring that in, it’s taken the edge off the shortage of capacity we were expecting and I would say there is adequate capacity right now to fill out programmes,” one senior underwriter said.
As a result, average rate rises are thought to have been in the region of 15 percent, rather than the 20 percent and above that had been heralded in the lead up to renewal.
At the same time, despite incremental demand as a result of the reduction in the Temporary Increase in Coverage Limits (TICL) layer of the Florida Hurricane Catastrophe Fund from $12bn to $10bn that was signed into law by the state’s governor Charlie Crist earlier this week, demand has fallen in other areas.
Florida underwriting sources suggest that a number of the state’s standalone domestic underwriters have cut growth plans after baulking at the cost of cover, which including their spend on FHCF and TICL protection added to private reinsurance can mean that 40-45 percent of overall premium is paid out on reinsurance.
Despite the early activity, the tropical depression is not expected to develop into a tropical storm, which would have been given the name Anna.