Berkshire, DE Shaw, Chubb could fill some last-minute holes in Florida: KBW

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KBW analysts say some of the companies known to be “last resort” reinsurance providers might step in to fill some last-minute holes in Florida renewals, but that would likely only affect higher-quality accounts.

After further visits to the Bermuda reinsurance market this week, KBW’s analyst team led by Meyer Shields said there remained gaps in programs and layers, meaning there are will be opportunities for opportunistic reinsurance underwriters to step in and fill some gaps.

“‘Last resort’ reinsurers – including Berkshire, DE Shaw and Chubb, which typically step in when no alternative is available – are likely to fill last-minute holes in higher-quality account programs,” wrote writes KBW analysts.

As we previously explained, there are as many as 25 Florida carriers still struggling to fill their reinsurance programs, with the lower layers being one particular area that has been challenging this renewal season, as reinsurance carriers and capital markets are increasing their towers and capacity. has become more limited this year.

Some executives expect reinsurance rates to rise 20% to 30% during Florida-focused reinsurance renewals on June 1, KBW heard in its meetings.

While risk aversion among reinsurance firms and capital markets is a factor, there is also the shrinking of capacity that targeted higher risk, higher return tower layers, particularly after the recent disaster losses.

We’ve seen companies like Berkshire Hathaway and DE Shaw enter dislocated markets and renewals in the past with ample capacity and the ability to underwrite programs at the last minute, if the price is right.

While these “last resort” reinsurers may step in and make hay in a market where they can charge hefty rates online, with their focus on quality they are also unlikely to save Florida market players the more in trouble, since these programs are probably less appealing to them, at all costs.

While the lower layers of reinsurance towers have been cited as a problem, KBW analysts also note that the Bermuda market says the upper layers with secondary risk exposures are proving almost as difficult to fill.

It’s important to remember that Florida hasn’t seen any major hurricanes in the past two years, yet its carriers have remained unprofitable, with losses from severe weather and small storms, and fraud. and resulting litigation, enough to make the market unprofitable for most.

Reinsurance capital providers are all too aware that fraud and litigation can come from a relatively minor rainstorm as easily as from a Category 3 hurricane impact in Florida and it seems they set their prices accordingly.

Interestingly, and aligned with our coverage of Florida’s insurance market challenges, KBW analysts note that virtually every reinsurance executive they spoke to in Bermuda said the special session reforms were ” incomplete”.

As a result, any resulting reforms are “at best a first step that is unlikely to impact prices or buying behavior on June 1,” KBW explained.

As we have seen for several years, the differentiation of reinsurance buyers continues in the June 2022 renewals.

KBW said the market “separates smaller Florida regions (which face higher insolvency and counterparty credit risk) from national carriers which can more easily withstand current pressure.”

“Reinsurers now view the latter group much more positively, while taking more precautions on the former, including full initial reinsurance premiums (compared to previous quarterly payments, to avoid bad debts) that will not be refunded if the primary carrier goes insolvent,” the analysts added.

With renewal fast approaching, KBW continues to believe that last minute capital providers are unlikely to step in, beyond the aforementioned “last resort” reinsurers who will fill some of the gaps and loopholes in the programs. .

“We believe that the current hard market, not driven by shocks, is why we don’t see last-minute ‘white knights’ providing much-needed capacity (major European reinsurers had played this role in the past) , and also why this current mindset — which sets Florida catastrophe risk apart from most other reinsurance lines and regions — is likely to persist,” the analysts wrote.

Read all of our reinsurance renewal covers here.

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