JLT Re, the world’s fourth largest reinsurance broker has said that study has shown that low single-digit reinsurance rate increases were recorded at the 1 June 2018 Florida property-catastrophe renewal, once again failing to meet early market expectations.


Buyers’ needs were adequately met at 1 June and more of the same is expected through the remaining mid-year renewals and into 2019. The value and efficiency of reinsurance protection is once again being demonstrated by allowing cedents to react speedily to underwriting opportunities, said JLT Re.


JLT Re’s Risk-Adjusted Florida Property-Catastrophe ROL Index increased by 1.2% this year, the first rise in seven years. This compared to a reduction of 5.1 per cent last year but did not match the rate increases recorded for US property-catastrophe business at 1 January 2018 despite a greater number of loss-affected programmes renewing after Hurricane Irma’s landfall in Florida last year. 

As a result, pricing for Florida property-catastrophe business remains 40% down on 2012 levels and only 13% above the previous cyclical low of 1999/2000.


Markets continued to prioritise better performing cedents during the Florida renewal, with underwriting and claims handling key areas of focus. Although Irma had a relatively muted impact on price, it did provide reinsurers with an opportunity to assess cedents’ post-event capabilities.


Brian O’Neill, Executive Vice President, JLT Re (North America) Inc., said: “Renewal experiences in Florida were wide-ranging, with some cedents’ loss-affected layers seeing risk-adjusted rate increases in the mid-to-high single-digit range. Cedents who had demonstrated strong post-event capabilities clearly benefitted from the additional capacity in the market. Rate increases for loss-impacted layers were muted, while in some cases, loss-free layers were even down modestly. Overall, the renewal was highly competitive, reflecting abundant capacity and only moderate increases in demand despite the market suffering its most expensive catastrophe loss year on record in 2017.”

Given the rapid reload of alternative capital following these events, insurance-linked securities (ILS) markets were vigorously looking to deploy capital at the Florida property-catastrophe renewal. Significantly, there was some evidence through the renewal process of ILS players extending provisions into areas traditionally dominated by traditional reinsurers, such as reinstatements.In doing so, they proved to be as competitive on price as the traditional market, with single-shot transactions such as top or drop aggregate cover and reinstatement premium protection occasionally coming in cheaper.


Abundant reinsurance capital continues to dominate the reinsurance market. JLT Re estimates that dedicated sector capital will be at record levels by the end of the first half of 2018, recovering strongly from the modest dip sustained last year after the USD 140 billion plus of insured catastrophe losses. The result is a continued supply and demand imbalance and a market awash with capacity.

David Flandro, Global Head of Analytics, JLT Re, said, “Dedicated reinsurance sector capital has been very strong with growth of over USD 10 billion during the first half of 2018, following roughly USD 7 billion of new capital raised in the final four months of 2017. This affirms the now established trend of third-party capital rapidly entering the sector post-loss to fill the gap more or less immediately. The effects of this were evident in the intense competition at 1 June between alternative and traditional markets culminating in negligible rate rises despite Florida having recently suffered its first landfalling hurricane since 2005.


This is a significant contrast to previous large-loss years which were all followed by significant – often double-digit – rate increases. It is now obvious that the means through which the sector raises capital at the margin have completely changed over the last decade, with huge implications for property-catastrophe reinsurance pricing and underwriting in particular.”

The first five months of 2018 have provided carriers with some respite as catastrophe losses have been relatively light. All eyes are now therefore firmly fixed on this year’s hurricane season. Some early season forecasts pointed to above-average activity, although downward revisions have been made in the latest rounds of updates due to unseasonably cold waters across the tropical Atlantic and Caribbean and the possibility of a developing El Niño towards the end of the season. Whatever the outcome, the reinsurance market is strongly position to deal with any potential losses.