Guy Carp: Florida Renewals Down, Longer-Term Trends Remain Unclear

Florida carriers have seen reinsurance rates decline as much as 7 percent during the just completed renewal season but questions remain regarding the viability of the state’s reinsurance subsidy, according to a new report by Guy Carpenter & Company.

“Florida always presents a set of unique challenges for companies designing and placing their reinsurance programs, and this year was no exception,” said Lara Mowery, Global Head of Property Specialty, Guy Carpenter.

According to the broker, average quotes at the June 1, 2010 renewal dropped by 5 percent to 7 percent from 2009. On a risk adjusted basis, reinsurance pricing dropped by 10 percent to 12 percent on a year over year average.

Guy Carpenter argues that the price declines seen in Florida are the result of an ” abundance of capital currently on insurers’ balance sheets.”

The firm says 21 companies that underwrite reinsurance have returned capital totaling $8.8 billion so far this year to shareholders compared to $1.8 billion in the whole of 2009.

Despite the positive news on rates, Guy Carpenter said that serious doubts remain regarding the longer term future of price stabilization and the state-subsidized insurance programs created to encourage lower rates.

Specifically, few companies have taken advantage of state’s Temporary Increase in Coverage Limit (TICL). The TICL was created in 2007 in an effort to bring down rates and acts as a extra layer of capacity in place of private market reinsurance.

Of the $10 billion TICL offered in 2009, only $5.56 billion was taken up, according to Guy Carpenter.  In 2010 TICL layer was reduced to $8 billion and take-up of $2.72 billion expected.

“Questions persist regarding the viability of the TICL layer and rating agencies’ treatment of it within the reinsurance structure,” the report said, adding that both the Florida Office of Insurance Regulation (OIR) and rating agency Demotech have restricted the use of TICL as a reinsurance option.

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