Analysts describe the potential rate movements as modest, with differentiation between the strongest and weakest performers.
Overall, the fundamental takeaway is seen as the possibility that primary insurers come out relatively unscathed from the renewal.
Analysts note how this is deservedly the case for some, but a lucky escape for others.
While there was wide agreeance amongst our discussions that the best operators were seeing better pricing/terms and those that have consistently underperformed are facing less capacity and higher pricing, most notably on the loss-impacted lower layers, it does not sound to JMP like the chasm is very wide – yet they believe results in recent years suggest it should be.
Elsewhere, analysts noted how a scrambling among primary insurers to reduce Total Insured Value has reduced reinsurance demand.
Several primary insurers with concentrated exposure to coastal areas had a very difficult 2021 that left them in an undercapitalized position.
With many already highly leveraged, and equity capital only an option for the small handful of public companies (many of whom are currently trading significantly below book value), many looked to shed TIV (total insured value) in order to reduce capital requirements.
This has reportedly led to a shrinkage of demand higher up in programs while supply has remained robust as new entrants are eager to put capital to work and ILS remains active in an active cat bond market, which has been a headwind to pricing in these higher layers.
Elsewhere, analysts heard numerous times about fresh capital being aggressive in getting on programs. While pricing on Florida/Southeast wind risk is still widley pegged at an unsustainably low level, even after multiple years of rate increases, new entrants have pressure to put freshly raised capital to work.
And lastly, while many Florida-centric primary insurers expressed optimism on their recent quarterly calls regarding the recently passed legislation in Florida aimed at curbing loss cost trends that will take effect on July 1, the reinsurers and brokers JMP spoke with expressed significant skepticism that the legislation will have a material impact on results.
Some of the actions that will be taken by the legislation include a shorter time limit for reporting a claim post-loss, a sliding attorney fee schedule that will eliminate the current one-way attorney fee statute, and prohibitions on roofing contractors making a wide array of “prohibited advertisements.”