NU Online News Service, June 1, 3:05 p.m. EDT
Reinsurance pricing at the June 1, Florida renewals declined by 10 to 12 percent on average compared to last year, reflecting a return of significant reinsurer capital into the marketplace, according to Carpenter & Company, LLC.
Guy Carpenter said pricing is back in line with 2008 levels.
Lara Mowery, global head of Property Specialty, Guy Carpenter & Company said in a statement that while Florida presents a unique set of challenges for companies designing and placing their reinsurance programs, the continued downward trend in pricing resulting from "a return of capital to the marketplace, balancing the scarcity of capital we witnessed last year, is certainly viewed as a positive development."
In its own analysis, Aon Benfield said the June 1 reinsurance market "is dominated by Florida homeowners insurers' renewals."
But Aon Benfield said the backdrop to the Florida-focused renewals includes a 2010 legislative season "that offered very little hope for residential insurance market recovery or ability of insurers to realize recently approved rate increases while competing with [Citizens Property Insurance Corporation, Florida's insurer of last resort].
Additionally, Aon Benfield said the reinsurance market is "carefully selecting cedents that are most likely to survive even a hurricane free 2010."
Aon Benfield stated, "The net effect of this backdrop was to continue the significant feeling of uncertainty about how or when the Florida residential market will make the transition to one that maintains the availability of insurance from private carriers for Florida residents."
The analysis added, "Despite a strong reinsurance market recovery from the financial crisis, the Florida residential insurance market is one of the few areas…that reinsurers believe became more rather than less risky in 2009 and the first half of 2010."
Meanwhile, Moody's warned in a report that reinsurers have already suffered significant catastrophe losses in 2010, and could have difficulty raising replacement capital if a large catastrophe were to occur.
Moody's said reinsurers began 2010 from a position of capital strength owing to robust 2009 profitability and a recovery in investment portfolios, they have been hit by significant catastrophe losses during the first five months of 2010.
Catastrophes so far in 2010 include the Chilean earthquake, European Windstorm Xynthia, hailstorms in Australia, and the ongoing Deepwater Horizon Oil Rig disaster in the Gulf of Mexico.
These events, Moody's said, resulted in an estimated $15 billion-$20 billion in insured losses, for both insurers and reinsurers.
If these losses come in at the higher end of the range, Moody's said it will be close to the $26 billion of insured natural and manmade catastrophe losses sustained during all of 2009.
Given the surplus capacity in the reinsurance industry, Moody's noted that many firms have been acting on substantial share repurchase authorizations, some issuing new debt to fund buybacks.
With virtually the entire reinsurance sector trading well below book value, however, Moody's said it is increasingly concerned about the sector's ability to replenish equity capital following a major catastrophic event, "which is one reason we changed our outlook on the sector to negative in Sept. 2009."
Unlike 2005, when capital flowed freely into the industry following record catastrophe losses, Moody's said in its report that there may not be enough capital to go around this time, with investors likely to be much more discriminating. Weaker franchises may be unable to recapitalize, forcing them to operate with higher financial leverage to the detriment of creditors.
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