The Importance of Leveraging Reinsurance in Florida
Reinsurance Rates & Capacity Impact Marketplace

Spreading one’s risk is an age old, core concept of insurance. It is, in fact, the core basis and foundation of insurance. The insurance companies that you know, those that as a consumer purchase personal and business coverage from spread their risks by purchasing and leveraging their own insurance coverage, something called “reinsurance”.

The reinsurance market is truly a global one dominated by some of the world’s biggest, strongest and most sophisticated businesses on earth. The rates and coverage that reinsurers offer to their customers, the insurance companies that you purchase your coverage from, significantly shape the cost, terms and available capacity of your protection options. When rates from a given insurance company go up or down, or capacity increases or decreases, much of that change was first influenced by what the reinsurance marketplace offered to the insurance companies.

Reinsurance is, therefore, very important in how insurers spread their risk much less the cost and terms of coverage that’s available. And I dare say that nowhere is it more important than in a coastal state exposed to catastrophic windstorm like, well, Florida. Ever since 1992’s Hurricane Andrew landed on South Florida’s shores and changed the property market (probably) forever reinsurance has been a truly critical component linked to both the availability and affordability of the coverage you and I purchase.

As I have written before, Hurricane Andrew changed everything. Well known “household” name insurers fled Florida after that storm and in many cases have never returned. In the early years after Andrew much of the windstorm market was dominated by the state’s insurer of last resort, today’s Citizens. 

Over the last decade to 15 years or so a crop of new private insurers were born and since then have written a significant amount of the property insurance consumers carry in Florida. These newer insurers, businesses with names that you did not grow up knowing, have been writing billions of dollars of insurance by leveraging abundant, low cost, reinsurance so to spread their risk and put the likes of the state, lenders and at least one rating agency at ease. Not only is the availability of affordable reinsurance often critical to an insurance company being able to write coverage for consumers but it’s an important component to how state regulators and rating agencies review an insurance company.  

Lacking the ability to leverage an abundant reinsurance market into the capacity needed to write the coverage you carry Florida’s domestic insurers (and much of the rest of the industry) cause all sorts of problems not only for the insurers but for everyone, especially consumers.  And that is exactly the news that is brewing in the marketplace as a result of the most recent June 1st reinsurance renewal date.

The catastrophic 2017 hurricanes including (Harvey [Houston], Irma [Florida Keys], Maria [Puerto Rico] along with 2018’s storms such as Beryl [Barbados], Chris [U.S. East coast], Florence [North Carolina], Michael [Florida Panhandle] and Oscar [Bermuda] have the reinsurance industry’s full attention. So does the fact that reinsurers have been engaged in a decade long “buyers’” market dating to 2008 during which rates frequently decreased and remained low while capacity was abundant and often seemed unlimited. 

In June all of that changed as the reinsurers sought large increases in the rates they charge insurers while also reducing the coverage they were willing to write. These changes will most certainly have an impact on the cost and coverage the insurance market offers consumers, especially windstorm, and while this sort of market “correction” is common every several years and typically only lasts two or three years it has the potential to cause all sorts of bad news in the months and years ahead.   

To explain what happened with the most recent June reinsurance renewals and some of the possible impact to the marketplace I am pleased to share a recent article from an excellent industry newsletter that I’ve long enjoyed called The Hales Report from the folks at Dowling-Hales, LLC. I realize that some of this is a bit “wonky” and includes a bit of detailed insurance jargon but given the importance of the topic to our clients I felt you might find it useful.  Any of the professional Underwriters or Agents here at Morris & Reynolds would be happy to discuss what all of this means or answer your questions.  

So what might the changes within the insurance industry mean? It is entirely too soon to know for sure but some industry observers see at least four possible scenarios;

(A) Increase their rates to cover increased reinsurance costs, 

(B) Reduce (in many cases dramatically) their writings, 

(C) Sell or merge with other insurers or, perhaps, 

(D) Cease operations because their own balance sheet can’t support the amount of coverage (risk) that they write.

In a market like Florida’s that is so highly leveraged by reinsurance when the reinsurers reduce their rates, increase capacity or new reinsurers enter the market it’s good for the insurers that purchase that reinsurance and consumers. However, when reinsurance capacity shrinks and/or rates increase the opposite is also true. Based on how the market changed in June I’d expect that these increases as well as whatever might happen when the rest of the market’s reinsurance renews on January 1st or, for that matter, in June 2020, that it might be a challenging market for both insurers and consumers in the near term.

The good news is that Morris & Reynolds has seen this sort of thing many times over our nearly seven decades of business.  It’s one of the reasons that we utilize an aggressive process in place to shop our clients’ coverage each year by scouring the market for options from the leading insurers. It also helps that Morris & Reynolds represent and have access to so many insurers and can offer our clients choices and solutions.   

Please contact your professional Agent or Underwriter here at Morris & Reynolds at any time with your questions about these topics, your own coverage or anything else that you might need as we are most happy to help. And for the honor of allowing us to help provide your protection, as always, thank you kindly. 

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