At the midyear 2024 renewals, reinsurance demand saw a significant increase, particularly for higher catastrophe layers, as Florida property insurers sought additional protection due to rising insured values from inflation and exposure growth.
Fitch Ratings noted that this increased demand was also driven by additional take-outs from Citizens, including the entry of seven new Florida property insurers.
Moreover, Fitch observed that the discontinuation of the Reinsurance to Assist Policyholders layer, introduced by Florida in 2022, has further boosted reinsurance demand.
Recent legislative and regulatory insurance reforms in Florida, coupled with minimal catastrophe loss activity in 2023, positively impacted the financial performance of the Florida homeowners’ specialty market.
Consequently, demand for reinsurance coverage rose at the June/July 2024 renewals, as Florida property specialists grew more confident in their ability to offer property insurance profitably.
The long-term financial benefits of these reforms must be proven before any significant reductions in reinsurance pricing can occur.
Fitch reported that pricing at the midyear renewals is moderating, with risk-adjusted rates remaining flat or slightly lower.
This contrasts with the 2023 renewal, where Florida property rates increased by 30%-40% for catastrophe loss-affected business, primarily due to the impact of Hurricane Ian in 2022.
Terms and conditions have remained firm, with retentions stable, continuing to provide earnings protection to cedents.
Both traditional and ILS sources are increasing reinsurance and retrocession capacity to the Florida market, including record issuances of catastrophe bonds with double-digit spreads.
This trend reflects favorable expected returns on property catastrophe risk following multiple rounds of price increases, including a market reset in pricing and terms and conditions after Hurricane Ian in 2023.
Despite the added capacity, Fitch expects the reinsurance market to maintain discipline and support rate adequacy, given the high catastrophe risk exacerbated by climate change concerns.
