Insurers cite another culprit: Reinsurers, who don’t agree

Feb 24, 2013

The folloiwng article was published in the Fort Myers News Press on February 24, 2013:

Insureres cite another culprit; insurers who don’t agree

By Andrea Rumbaugh

Insurance companies need insurance too, and this type of insurance – called reinsurance – can impact the price of homeowners insurance.

Tim Shaw, president of Tim Shaw Insurance – Acentria, said insurance companies have been purchasing more reinsurance at higher costs.

Companies began purchasing more reinsurance after Hurricane Andrew hit the state in 1992. Shaw, by talking with insurance companies he does business with, said reinsurance costs between 35 and 65 percent of the premiums that insurance companies charge.

Florida’s reinsurance costs increased for about 15 years and recently stabilized. He said the increase has been caused by companies purchasing more reinsurance, the string of hurricanes in 2004 and 2005, and recent changes in catastrophe loss models. These model changes stated that the middle of Florida has a larger risk for hurricanes than previously thought, and this caused the cost of reinsurance to increase in the middle of the state.

While he said 2013 reinsurance rates should be more moderate, “there’s no prediction for what’s going to happen to 2014 rates,” Shaw said.

According to the Reinsurance Association of America’s State of the Reinsurance Market 2013 Overview, the U.S. had record losses in 2005 from Hurricanes Katrina, Wilma and Rita. The cost of reinsurance increased because of these catastrophes – and the fact that demand increased more than supply in certain areas because of rating agencies requiring more capital of insurers and reinsurers, catastrophe risk modeling firms increasing loss predictions and insurance companies purchasing more protection.

“The amounts paid by insurers for reinsurance increased significantly in areas exposed to hurricanes due to the combination of the increase in the amount purchased and the ensuing demand-driven increase in the price of windstorm catastrophe reinsurance,” the report stated.

By January of 2008 renewals, the report stated that supply exceeded demand and national rates went down. Rates had a moderate increase in January 2009 renewals but were down again in 2010 and 2011. And although 2011 was a tumultuous year, the reinsurance market wasn’t affected in 2012 like it was after the storms of 2005. Reinsurers were better prepared, the report stated.

Therefore, Dennis Burke, vice president of state relations for the Reinsurance Association of America, said he doesn’t think reinsurance rates are really playing a role in the current increase in homeowners insurance.

“Reinsurance prices have been stable and are below the 2006 market price,” he said.

Burke said reinsurers and the capital market equivalent of reinsurance are more willing to expose themselves to Florida hurricanes. The supply for reinsurance is exceeding the demand in Florida.

“I don’t think that reinsurance is really driving insurance rates,” he said.

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