Chris Dittman, Head of Florida Strategy, Aon’s Reinsurance Solutions, speaks about the challenges and opportunities in the Florida re/insurance market

If we think about Florida’s market opportunities today, there is a real issue with the availability of reinsurance capacity below the Florida Hurricane CAT Fund. Concurrently, surplus levels of insurance carriers are decreasing due to poor underwriting results driven mainly by litigation, creating a severely capital deficient Florida marketplace.

This week I had the opportunity to speak at the 2022 Florida Chamber Annual Insurance Summit on Avoiding a CAT-Astrophe: Florida’s CAT Fund & Reinsurance. Moderated by Dr. Cassandra Cole , Florida State University Risk Management & Insurance, the panel also included perspectives from the Florida Hurricane Catastrophe Fund, the Reinsurance Association of America , and Fermat Capital Management, LLC , an alternative investment management firm.

The big question was around the drivers behind availability and pricing of reinsurance today. On a global basis, we are seeing a supply and demand imbalance of $20 to $30 billion. When we drill down to Florida, given it is the peak CAT risk in the world, the supply and demand imbalance is exacerbated. The availability of reinsurance capacity is moving further away from loss as reinsurers struggle to identify the true loss costs.

As we look forward to the 6/1 renewal time, we must keep a sharp eye on the 1/1 renewals. Retro capacity is extremely tight and will likely limit how much risk reinsurers can hedge in 2023.  Additional reinsurance capital is using the “wait and see” approach; if projected pricing and terms for the 1/1 renewals truly hold and the Florida legislative special session next week provides meaningful changes, we will likely see some new capital start to slowly become available for 6/1 renewals.

The more important next step is where do we go from here? We all have high hopes and optimism for the Florida special legislative session taking place next week. Assuming the market perceives a positive outcome and capital slowly comes into the market for 6/1 renewals, this will alleviate some of the stress on the property CAT reinsurance programs for Florida insurance carriers. Furthermore, a change in the one-way attorney statute will stabilize overall loss costs going forward for Florida insurance carriers and the impact of this will go a long way to stabilize the Florida insurance market in the long run.

The reinsurance market is in a period of uncertainty, as macroeconomic volatility and changing loss trends alter the supply and demand dynamic. However, there are still opportunities to achieve favorable outcomes at renewals. Differentiation and transparency are critical. Clients that listen to reinsurer concerns and tell a granular story will secure capacity at the best available terms and conditions.

All parties at renewal will need to be flexible and pragmatic. Insurers will need to anticipate how changes in the market will affect their programs and keep an open mind to alternative solutions and sources of capacity. Aon is working hard to create additional capacity and ensure that reinsurers can support our clients to the fullest, by addressing uncertainties like inflation and secondary perils head-on.

These are all topics that will be discussed in Aon’s Reinsurance Market Dynamics report launching in January and at the Florida Insurance Market Summit Aon co-hosts with Colodny Fass on February 15-17, 2023. To receive Aon’s thought leadership reports directly, please manage your communications in Aon’s Preference Center. After you authenticate your email address, please select ‘Reinsurance Solutions’ and check off ‘Thought Leadership’ under all categories. In the meantime, here’s the September Ultimate Guide to Renewals report.

Chris Dittman is Head of Florida Strategy, Aon’s Reinsurance Solutions