Guy Carp’s Fuller: Reinsurers’ “cautious optimism” making Florida renewals more orderly

The ongoing Florida renewals are seeing more overall appetite from reinsurers than expected, Guy Carpenter’s Florida segment leader Randy Fuller has commented, adding that the Sunshine State may also see carriers look to do take-outs of Citizens policies following the hurricane season.

Speaking on an AM Best webinar briefing on the Florida property market, Fuller said: “We've got about a week left until June 1, and so far what we're seeing is a much more orderly renewal process than what we saw in 2022.”

The executive said he is seeing “a bit more overall appetite” as some of the reinsurers that stepped back last year have either re-entered or increased their participation this year.

“It is generally not massive increases in appetite,” he said. “I'd say it’s been characterized by cautious optimism. But it's been enough to make the renewal much more orderly than last year, and certainly much better than what many people feared might play out here for the 2023 renewals.”

Fuller said the optimism has two drivers: the Florida insurance reforms passed in December, which he described as a “huge win for the industry”; and a greater line of sight into expectations around pricing.

The executive said the December reforms are “returning confidence to reinsurers that the state is serious about fixing some of the dysfunctions that drove some of the past results.”

This year’s renewal is in contrast to last year, which was marked by “tremendous pressure”, extremely tight capacity and were very late, he said.

“We saw several reinsurers even exit property cat altogether, and several more exit Florida or significantly reduce their Florida capacity,” Fuller said.

The executive noted that there had been big concerns heading into this year’s Florida renewals, following the most challenging 1.1 renewal since at least 2006, as well as a difficult 2022 that included Hurricane Ian.

“The concern was also especially acute for layers that are below the FHCF lower attaching layers, as just a general global phenomenon has been reinsurers looking to move further up programs and increasing attachment points,” he said. “It is typical that a Florida domestic company has a fairly low attachment point so we figured that was going to be a pretty pretty strong pressure point there.”

Fuller noted that more carriers have looked to establish captives in order to help mitigate some of the risk of that capacity down at the bottom of programs.

The Guy Carpenter executive’s comments follow recent reporting by this publication that the Florida renewals were largely on track, in contrast to last year’s very late renewals.

This year there is increased interest from reinsurers such as Berkshire Hathaway, DE Shaw, Arch and Ariel Re, which have been attracted by the sky-high rates-on-line now available on Florida homeowners reinsurance layers below the cat fund and the significant increases higher up towers.

This has allayed fears of a capacity crunch for many buyers at the 1 June renewal.

Capital sitting on the sidelines

During the webinar, Fuller also suggested many carriers are starting to see the benefits of the reforms passed in Florida.

When asked whether more (re)insurance capacity will be attracted to the market, he said that some investors and reinsurers say they need more proof of the impact of the reforms.

“As people get more comfortable with the idea that the reforms have been effective, you'll start to see more capital come off the sidelines,” he said. “We've already seen some of it come off the sidelines just on pure intuition and the sense that it's going to be effective.”

Fuller suggested that markets will be watching the development of Hurricane Ian, which made landfall before the reforms were passed. He believes there will be some behavioral change in the way that Ian performs compared with previous storms in Florida.

“We've already seen it behaving a little bit better than we've seen with Irma and Michael,” he said. “We'll have to watch that for another probably six months or so before we're able to see some of the real data behind things like litigation rates and late reported claims, and things that tend to come further into the tail.”

Fuller was also asked about the potential for Citizens take-out deals.

He said that a lot of companies are not financially positioned to take additional business because of the stress that remains in the Florida homeowners market. And those that are in a position to do take-outs are unlikely to pursue deals yet.

“Let's just say that there are a few carriers out there that are in position to maybe do a Citizens take out, and then you've got some start-ups that are also waiting in the wings or just recently started up that are looking at them as well, I think the primary concern right now with evaluating a take-out is whether there's enough business in there that's rate adequate,” he said.

Fuller noted the December reforms included a provision that policyholders now cannot use Citizens if an authorised insurer makes an offer within 20 percent of the state-run insurer’s premium.

The executive said this helps, but added: “Still, by many estimates Citizens’ rates are 50 percent or more below some of the private companies’ rates. That doesn't mean that there's not some policies in there that are within reach, but it does limit the potential pool of desirable take-out candidates.”

The ability to do take-outs will also depend on portfolio management and risk management, he suggested.

“If June 1 turns out to be what it looks like it's turning out to be, which is a little bit more orderly than expected coming into it, I do think there'll be a bit more appetite to look at some Citizens take-outs and feel a little bit more confident that the capacity is there,” Fuller said.

“The other thing that people are waiting on is the end of hurricane season. I don't think you'll be seeing too many people pull the trigger in a big way before hurricane season because all we need is a major event and it really sends everybody back to the drawing board,” he added.