Florida 1 June rates up 15%

Florida property catastrophe reinsurance rates increased by 15% at the June 1, 2009, renewal, compared to a decline of 15% a year ago, Guy Carpenter’s latest report confirms.

This is lower than the 20% rise expected and follows the 10&% to 14% rises in April.

Rate rises explained

• A decline of £2bn in the Florida Hurricane Catastrophe Fund’s (FHCF’s) Temporary Increase in Coverage Limits (TICL) layer and liquidity needs within the rest of the TICL layer led to an increase in demand for private reinsurance of 5% to 10%. Though there was sufficient capacity to meet cedents’ needs, prices were pushed higher as a result.
• Firm order terms (FOTs) rose 10% to 14% year-over-year for lower layers and 14%to 18% for higher layers. Quoting was tight – with an average range of -3% to 3% around the average quote.
• Pricing shifted back to 2007 levels on a risk-adjusted basis. Lower layer FOTs increased by an average of 11% in 2009, compared with declines of 11% and 15% in 2008 and 2007, respectively. For middle layers, FOTs gained 14%, as compared to -15% and -17% in the two previous years. Higher layers rose 18%, in stark contrast to -19% in 2008 and -23% in 2007.
• Traditional capacity declined by 10% at the June 1, 2009 renewal. This drop, coupled with a decline in hedge fund-supplied capacity, had many cedents concerned about a lack of sufficient capacity. These anxieties were further exacerbated by the decline in the TICL. In the end, however, there was sufficient capacity in the market to meet cedents’ needs.
• Many Florida insurers posted net losses last year while seeing net exposure increase because of a reduction in FHCF coverage and an increase in the FHCF retention.
• Adding to the Florida renewal season’s stability in the last few weeks were the improving conditions and the increased volume in the tax-exempt municipal bond market leading to an increase in the FHCF’s post-event bonding capacity estimate to $8bn from $3bn in October 2008.