CHICAGO — Hurricane Milton pummeled Florida’s Gulf Coast last week, clouding the outlook for real estate catastrophe prices, as insurers, reinsurers and brokers discussed updates at a key market meeting.
The storm was less destructive than initially feared, as it was downgraded from a Category 5 to a Category 3 hurricane before making landfall south of Tampa, but insured losses remain unknown. Modeling firm Moody’s RMS announced on October 14 that insured losses for Milton would range from $35 billion to $55 billion.
While uncertainty surrounding losses clouds the outlook for real estate, experts who attended the Property Casualty Insurance Association of America meeting in Chicago on October 7 and 8 said future updates will We are increasingly confident that rates will rise.
APCIA’s annual conference is a key meeting for reinsurance renewal discussions, with several recent market studies showing that property and casualty premium rate growth is slowing or, in some cases, declining. It was held in response to the recommendations.
However, just days before APCIA, Hurricane Helen struck the southeastern United States, causing historic flooding in the interior and causing insured losses that could exceed $10 billion, according to early estimates. And while the debate was taking place, Hurricane Milton was raging over the Gulf of Mexico.
Still, executives said the storm’s impact on the market could still be limited as reinsurers and insurers have significantly restructured their portfolios over the past few years.
The real estate reinsurance sector has seen significant price increases since 2022, when Hurricane Ian hit Florida, resulting in losses of approximately $50 billion, and reinsurers posted strong performance in 2023, it said. said Claude Yoder, Lockton Re’s New York-based head of global analysis. Reinsurance Brokerage Division of Lockton Cos. LLC.
“Even if (Milton) is $50 billion, it’s well within the range that the reinsurance market can handle,” he said.
Kyle Menendez, New York-based managing director of Howden Re, a division of Howden Group Holdings, said real estate insurers are raising prices, restructuring deductibles and paying less for older roofs. The agreement reportedly includes provisions such as a roof depreciation schedule.
In addition, reinsurance rates for real estate disasters have also increased, he said.
Menendez said the insurance and reinsurance sector should “continue to be healthy” with mixed trends, given the uncertainty surrounding losses from Hurricane Milton.
Philip Rey, executive vice president of real estate at New York-based Mitsui Sumitomo Insurance Management (USA), said the real estate insurance market has been stable this year, with recent storms having a significant impact on overall market conditions. He said it was unclear whether that would be the case.
“I don’t know if Helen will have a big impact on the market, but it could affect sentiment because there have been losses that people don’t realize,” he said.
Randy Fuller, managing director of Tampa, Fla.-based Guy Carpenter & Company LLC, said many of the losses related to Hurricane Helen were due to flooding, not wind, and the reinsurance market will be affected. He said that there is a high possibility that it will not have any effect.
He said it is too early to tell what impact Milton will have, but reinsurance capacity continues to increase and demand for reinsurance coverage is also increasing.
“A lot of that demand is driven by two factors,” Fuller said. “One is that vendor models are changing and it’s not driving increases for everyone, but overall it’s an increase and we’re also seeing the lagged effects of inflation. .”
He said that as real estate reinsurance rates skyrocketed in 2022 and 2023 when inflation was at its peak, some cedants were not in a position to purchase additional capacity to cover their expanding portfolios. said.
“Now that the market has calmed down a little bit, we’re seeing more customers looking to add to that cap,” Fuller said.
Lockton Re’s Yoder said reinsurance capacity has increased over the past year, but that’s largely due to incumbent reinsurers, who have more control over where to deploy that capacity. He said it would be possible to control the situation strongly.
Liability and reinsurance premium increases are likely to remain, experts say.
Although interest rates have increased over the past few years, concerns over the development of reserve funds over the past few years remain, leading to an increase in court awards and settlements. And new liabilities such as per- and polyfluoroalkyl substances, or PFAS, Yoder said.
“On average, everyone says interest rates are going up, but when there is disagreement, it’s more about whether the losses are correct for older accident years and even some of the more recent accident years. ” he said.
The liability insurance and reinsurance market is segmented with recent entrants unencumbered by past losses. Companies that are satisfied with their reserve positions over the past few years. Menendez said some large companies that launched their businesses between 2015 and 2020 are considering reducing their portfolios as they worry about worsening loss trends.
He said concerns about loss trends could lead to lower ceding fees reinsurers pay insurance companies in proportional arrangements, but this would depend on individual performance.
“The leveraged nature of the excess loss layer could manifest itself in a continued rise in interest rates, but again, part of that will depend on how much interest is achieved in the primary market,” Menendez said.
He said reinsurers will seek to improve margins on their debt business, which could result from an increase in primary interest rates.
