Florida cedants’ submissions have landed on underwriters’ desks for mid-year renewals, with sources indicating that downward pressure on pricing seen at 1 January has slowed, partly down to the California wildfire losses.
There are multiple factors at play influencing pricing movements up and down, with nuances to how they’re impacting at different layers in the reinsurance stack and across private ILS versus cat bonds.
New Florida market demand is anticipated to be $5bn-$7bn, sources said, driven generally by private market revitalisation post-tort reform.
On the upward pressure side, demand is rising from private carriers especially after major takeouts from Florida Citizens, and the market is generally healthier post-reforms, with competitors pursuing growth. There is also a new, higher and rising baseline of what’s considered normal for expected losses, driven largely by adjustments for climate change.
On the other side, pricing is being squeezed by the strong appetite coming from protection sellers with a growth focus, particularly those with the muscle to put down large lines and who want remote positions. There is also generally ample capacity, with one source pegging oversubscriptions at around 120%.
The 2023 peak in property cat rates is being used by some as a benchmark to measure 2025 rates against, with ILS managers keenly focused on their ability to generate profits even in the event of smaller-to-mid-size loss events.
One source said: “The reinsurance industry footed the bill for fraud in Florida for many, many years and that cannot be recouped after one or two good years.”
For collateralised re, loss-impacted lower layers could be in line with 2023 “or even higher”, while non-loss impacted business and higher layers could be more in line with 2024’s pricing, give or take.
There are also conversations around coverages that were ceded to captives last year, including where carriers took a triple hit on their retentions from Debby, Helene and Milton.
The tone from ILS managers is supported by the clear signs of revitalisation in Florida insurance and the rise in demand for coverage across the risk spectrum that’s expected to flow from that.
Around 12 carriers shared in 650,000 policy takeouts from Florida Citizens in October and November last year. They were American Integrity, Florida Peninsula, Homeowners’ Choice, Monarch, Slide, Southern Oak and TypTap, and startups Condo Owners Reciprocal, Manatee, Orange Insurance, Orion180 and Trident Reciprocal.
Florida Citizens policy count was down to around 850,000 as of March, about the level it was three years ago, in April 2022.
There are also known to be another at least five startups in the making, including Mangrove Property Insurance, set up by former Renaissance Re general counsel Stephen Weinstein.
Sources note that the expanding private market is submitting for quotes on lower layers around where the Reinsurance to Assist Policyholders (RAP) scheme used to play. Demand for coverage at more remote layers is also increasing, with cedants looking at return periods of 1-in-200-years and rising, as loss expectations climb on the back of climate change-driven shifts in the view of risk.
Brokers also note that the newer firms are beginning to familiarise themselves with the cat bond product, indicating that new sponsors are likely to enter the pipeline over the coming months and years.
Existing sponsors, meanwhile, are continuing to tap capital markets investors for cat bond coverage. As reported by Insurance Insider ILS, mega-bond deals totalling issuance of ~$3bn are being lined up by State Farm, Florida Citizens and Texas Windstorm Insurance Assocation (Twia).
Cat bond pricing softened last year overall to offer an average multiple of 4.4x, down from the 2023 peak of 5.7x, and while it is generally not expected to return to 2023 levels this season, market observers note that pricing has now broadly stabilised.
Any downward pressure on bond pricing is likely to be more intense for index bonds, though any shifts could be less pronounced compared to drops last year that were linked to investor exits.
Meanwhile, data coming through from cedants so far on losses from last year’s landfalling Florida hurricanes is pointing to lower loss costs post-reforms.
Even so, ILS underwriters remain cautious about the impact of the reforms, pointing out that historically, post-event claims inflation in Florida has occurred 12 to 18 months, or even longer, after the event.