"Reinsurance Market Outlook: Remarkable Recovery," January 2010, from Aon Benfield.

This report includes excellent background on catastrophe reinsurance and the Florida property market going into the 2010 hurricane season. The Florida Insurance Council does not collect information on reinsurance pricing, but several important private reports are published, which FIC does distribute, including this Aon Benfield reports. Aon Benefield reports that catastrophe reinsurance rates are decreasing 5 to 15 percent throughout the country. Rates are expected to remain essentially unchanged in Florida from 2009 to 2010.

Other key findings in the report:

Florida and its residents will be liable for nearly $28 billion in losses or, said differently, more than 25 percent of the total projected $107 billion loss from a 1 in 100 year industry event in Florida. Following this type of an event, Citizens would be distressed and surviving companies would likely have to rely more heavily on external market reinsurance with considerably higher rates."

"Rating agencies are still concerned with the Florida Hurricane Catastrophe Fund’s (FHCF) ability to raise sufficient funds post-event," despite the light 2009 hurricane season in the southeast and Florida, Aon Benfield says.

Based on resources currently available to the Cat Fund and Citizens Property Insurance Corporation, "Florida and its residents liable for nearly $28 billion in losses or, said differently, more than 25 percent of the total projected $107 billion loss from a 1 in 100 year industry event in Florida. Following this type of an event, Citizens would be distressed and surviving companies would likely have to rely more heavily on external market reinsurance with considerably higher rates."

This 52-page study is available from the link below:

http://www.aon.com/attachments/reinsurance/200912_ab_analytics_reinsurance_market_outlook_dec.pdf

Here are highlights from the report as summarized in a release from Aon Benfield:

  • Pricing has decreased from 5% to 15% across various national and regional carriers in line with our expectations published in September 2009.
  • "Aon Benfield believes that reinsurers will not be able to deploy all their capital and, as a result, we project $10 to 15 billion in significant reinsurer share repurchases during the year. The growth of government-sponsored insurers and reinsurance-like entities continues to erode the opportunities for private reinsurers to deploy capacity. Reinsurers have the capacity or could maintain higher levels of capital if reasonable demand were present."
  • "The rating agencies are concerned with how companies are managing the pricing pressures they are facing. Specifically, they are focused on ensuring that companies are not sacrificing underwriting standards to obtain or retain business."
  • "Despite the light 2009 hurricane season in the southeast and Florida, the rating agencies are still concerned with the Florida Hurricane Catastrophe Fund’s (FHCF) ability to raise sufficient funds post-event. In fact, the FHCF just announced they need to raise approximately $300 to $600 million in additional bonding capacity to close out payments from the 2004/2005 hurricane season."
  • "Based on an estimate of the Florida market, 25 percent of companies are currently modeling on a long-term basis. Should they need to model their PMLs on a near-term basis for Demotech purposes, the increase in PML would be an estimated $2.5 billion."
  • "There is still a great deal of uncertainty surrounding the post-event bond issuance and thus, the FHCF’s claim paying capacity. Based on the capacity described above, an event that exhausts the FHCF would result in policyholders paying a 3.9 percent assessment for 30 years to cover the post-event financing of $11 billion."
  • "Citizens’ net loss estimate for a 1 in 100 year storm is $13.3 billion, while it only estimates $4.1 billion in capital at the end of 2009. The FHCF currently needs to fund approximately $18.7 billion to cover its exposure to a 1 in 100 year event ($23.2 billion of total capacity less $4.5 billion of projected fund balance). This leaves Florida and its residents liable for nearly $28 billion in losses or, said differently, more than 25 percent of the total projected $107 billion loss from a 1 in 100 year industry event in Florida. Following this type of an event, Citizens would be distressed and surviving companies would likely have to rely more heavily on external market reinsurance with considerably higher rates."
  • "A meaningful government intervention into otherwise insurable risks is clearly foreseeable upon the occurrence of an event impacting a broad portion of the uninsured public. Such an intervention is unlikely to occur without consequence to existing insurers and their shareholders. In exchange for the participation in TARP, banks were required to issue equity warrants, diluting existing shareholders, enact certain limits on executive compensation, enhanced disclosure and other requirements."