The Covid-19 pandemic has compounded an already firming reinsurance market environment at the renewals, causing challenges in completing placements and driving double-digit Florida rate increases, according to Guy Carpenter.
The reinsurance broker explained that the June 1st reinsurance renewals for Florida property and catastrophe risks were particularly affected by the the pandemic.
The result was “pronounced” property catastrophe reinsurance price increases in June and Guy Carpenter’s preliminary review of risk-adjusted pricing data shows most Florida cedents experienced double-digit reinsurance rate increases at June 1st 2020, the broker explained.
As well as rate increases, terms and conditions were also on the move, as tightening of conditions were seen at the renewals with communicable disease exclusions enforced by reinsurance, while cascading features were more broadly removed from many programs.
The imposition of pandemic exclusions actually became a bit of a problem, Guy Carpenter noted, with the stringent application of new exclusions risking making the very coverage a reinsurance contract was supposed to provide unworkable.
“Driven by a focus to achieve an absolute communicable disease exclusion, many proposed wordings were so broad that they risked excluding otherwise covered losses such as hurricane or earthquake if there was any perceived (direct or indirect) contribution to the ultimate loss from communicable diseases,” the reinsurance broker said.
Guy Carpenter said that it worked with reinsurers and industry groups to modify language and ensure that reinsurance cedents did not inadvertently give up important coverage because of pandemic related renegotiation of terms.
The broker also said that at the June renewals there was “significantly less deployable capacity this year” given the refining of portfolios of Florida risk and reevaluation of portfolio composition that reinsurers have been undertaking.
“The uncertainty generated by COVID-19 further exacerbated this dynamic,” the broker added.
Differentiation across cedants was again evident at the reinsurance renewal, as programs closed on different terms depending on loss experience, capital strength, as well as the perceived risk of litigation or assignment of benefit (AOB) related effects.
Guy Carpenter further explained that, “Cedents who performed strongly against these criteria benefited from enhanced access to capacity and more favorable pricing and terms.”
Of course, the reason Covid-19 has had such an impact on reinsurance renewal rates so far is not simply the losses it is expected to create.
The pandemic has also heightened the industries awareness of both risk and the need to earn sufficient returns on capital to deliver to its shareholders and investors. As a result, the perceived cost-of-capital of the insurance and reinsurance industry has risen, resulting in an increasing determination to earn improved underwriting returns.
Something the industry hopes can persist into 2021 at future renewal seasons.
Covid-19 “compounded” firming of reinsurance at Florida renewal: GC was published by: www.Artemis.bm
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Original Article Posted at : https://www.artemis.bm/news/covid-19-compounded-firming-of-reinsurance-at-florida-renewal-gc/