Reinsurance renewals for Florida windstorm risk – which historically have moved in tight lock-step for all carriers — are showing more variation as reinsurance underwriters and cedants become comfortable with tailoring prices based on modeled results, according to a report issued Wednesday by broker Guy Carpenter.
While the variation of prices in the Florida hurricane renewal season that ended June 1 has moderated since 2011’s “volatile” reups, the report says that longer term pricing trends reveal that both buyers and sellers focus on individual company risks rather than lumping carriers risks together.
“As seen at the January and April renewals, reinsurers are implementing more sophisticated approaches using custom risk measures, based their own research and experience,” according to a statement from Lara Mower, head of Global Property Specialty at Guy Carpenter. “Pricing and capacity outcomes more specifically reflect each company’s circumstances.”
According the Guy Carpenter, the June 1, 2012, quoting behavior “reveals a continued shift in the once cohesive view of Florida pricing.”
The report points out that during the 2009 and 2010 Florida windstorm renewals the average quote was consistently within a range of 3% below, to 3% above, the overall price average.
But during last year’s renewals — when the reinsurance industry was reeling from large catastrophe losses and the introduction of the RMS model — the price volatility increased five-fold, Guy Carpenter says.
While the average quote variation in 2012 moderated to 7% below the average quote to up 6% over, the volatility in pricing Florida hurricane risk will remain high over historical norms, the broker explained.
“While the quoting behavior analysis does not indicate any pricing direction in the market as each reinsurer is measured from the average quote on the program, it does provide support for the idea of a more tailored approach by many reinsurers to each individual renewal,” the report says.
Guy Carpenter argues that the new pricing variation for Florida wind is based on reinsurers focus on individual company characteristics and customized use of model output.
“[Reinsurers] are implementing more sophisticated approaches using custom risk measures, based on their own research and experience,” the report added.
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