• The Florida Chamber of Commerce’s Insurance Summit featured industry leaders discussing strategies to improve Florida’s reinsurance market.
• The panel discussed attracting more reinsurance capacity to Florida, especially in light of recent legislative reforms and the state’s vulnerability to natural disasters.
• They stressed the importance of attracting and maintaining capital in the face of high unpredictability, with a particular focus on accurately assessing and pricing risks.

Industry leaders at the Florida Chamber of Commerce Insurance Summit convened this week to discuss key strategies for enhancing Florida’s reinsurance market, focusing on attracting more capacity, securing capital, and assessing the impact of inflation and model changes.

The panel, comprised of Jack Nicholson, a consultant for Catastrophe Risk Consulting, Bryon Ehrhart, Global Head of Growth and Strategic Development at AON, Dr. John Seo, the Co-Founder and Managing Director of Fermat Capital Management, and Justin O’Keefe, Chief Underwriting Officer for RenaissanceRe highlighted the concerted effort to attract additional reinsurance capacity to Florida, buoyed by recent legislative reforms.

Last December, the state lawmakers approved the allocation of funds to support reinsurance, a crucial safety net for private insurers. The bill earmarked $1 billion in tax dollars for this purpose, adding to the $2 billion that was allocated in a special session in May 2022.

The cost of private reinsurance has been on the rise, making it more challenging and expensive for insurers to purchase, which is oftentimes reflected in the rates charged to homeowners.

The reforms, the panel contended, have made the state more attractive to reinsurers, which is vital given Florida’s high exposure to natural disasters.

“That reform has really allowed us to look with confidence to our investors about our ability to underwrite the risk of this state,” said O’Keefe.

Panelists also drew attention to the necessity of ongoing dialogues with investors to secure more reinsurance capital. With Florida’s risk profile due to hurricanes and climate-related events, they claimed, maintaining a steady flow of capital into the insurance market is crucial for its stability and growth.

“Let’s be clear, we’ve all been talking to the same investors all around the world for this and it’s a difficult conversation,” said Ehrhart. “People understand that insuring or reinsuring ‘Acts of God’ is a difficult business.”

The group elucidated that the reinsurance industry is currently navigating a period of significant transformation, characterized by a “survival of the fittest scenario,” as they referred to it, where only the most financially robust and efficiently managed firms are managing to stay afloat.

This shift, while challenging, they said, is leading to a healthier and more resilient market, but it’s not without its complexities. One of the primary challenges facing the industry is the disparity between the growing demand for insurance coverage and the relatively slower pace at which insurers can increase their financial reserves posing a risk to the ability of these firms to meet client needs effectively.

Inflation is another critical factor impacting the sector as rising prices are leading to increased costs, which in turn affect the profitability and operational capacity of insurance companies.

Inflationary pressure is compounded by the difficulties in accurately predicting and pricing the risks associated with natural disasters. To exemplify, the panelists cited the aftermath of Hurricane Irma, where recovery costs far exceeded initial estimates.

These challenges extend to the realm of capital acquisition, O’Keefe said. Convincing investors to put their money into a sector fraught with high levels of unpredictability, such as the reinsurance industry, has become increasingly difficult, with the uncertainty surrounding natural disasters and their potential financial impact making this an even more daunting task.

“If you go to Hurricane Irma, we were still getting loss development into 2020 and 2021. Just our firm alone spent well in excess of half a billion dollars more than we ever would have expected to pay,” he said. “So how do we go back to investors to ask for more money when they’re saying: how do you price for the unknown?”

The panelists closed out the segment by delving into evaluating the impact of model changes on reinsurance pricing for the upcoming renewal season. They acknowledged that with the evolution of catastrophe models, it’s critical to understand how these advancements might affect reinsurance pricing, as accurate risk assessment is crucial for both insurers and reinsurers.