April reinsurance renewals saw significant price drops, and June renewals could see double-digit drops for Florida property-catastrophe risk, according to Fitch Ratings.
“The price declines, along with more generous policy terms and conditions, result from recent low catastrophe losses and continued abundant reinsurance capacity from both traditional reinsurance and the growing alternative capital market,” Fitch says in a statement.
Fitch notes that June sees an abundance of Florida property-catastrophe risk renewals. “Florida property is among the most widely modeled catastrophe risks and is therefore the area of focus for third-party capital,” Fitch says. “Consequently it has experienced the most reinsurance pricing pressure and we expect competition between traditional and non-traditional reinsurers to remain fierce this year.”
Last year, Fitch says, Florida rates dropped by up to 25% in June.
No major hurricane has made landfall in the U.S. since Hurricane Wilma hit Florida in 2005, which Fitch says is the longest interlude since the 1860s. This has led to a build up in capital for reinsurers, which has further pressured rates. “But we still believe Florida reinsurance risk is adequately priced despite the recent rate declines, particularly compared with property-catastrophe reinsurance pricing in other countries, which tends to be more fragmented and not as easily modeled,” the ratings agency says.
The growth of Florida-only specialist insurers could help increase demand, says Fitch, as they use more private-market reinsurance.
Fitch says the April 1 renewal period primarily focused on the Asian market. “Japanese catastrophe loss-free pricing was down as much as 17.5% for earthquake and 15% for wind and flood risks,” Fitch states. “This reflects the effective payback reinsurers have received in the three years since the Tohoku earthquake losses in 2011, which resulted in significant rate increases.” U.S. and UK/Europe property-catastrophe reinsurance pricing at April 1 was down 10% to 20% for loss-free accounts, in line with Jan.1 declines, Fitch adds.