O’Donnell: FL regulatory changes alone not enough to change RenRe appetite

It will take more than the recent legislative reforms of Florida’s homeowners market to increase RenaissanceRe’s appetite for supporting domestic carriers in the state, according to the Bermudian’s CEO Kevin O’Donnell, who also said he expects rate increases at the 1.4 Japanese renewal to be more moderate than those seen at 1.1.

RenaissanceRe has long been a leading player in the property cat reinsurance space, but while Southeast US hurricanes remain its largest exposure, it has meaningfully retrenched from the Florida domestic market in recent years.

O’Donnell has frequently highlighted the challenges in reinsuring that segment of the marketplace, including the litigation environment.

A round of sweeping reforms in two special sessions of the Florida legislature last year – with more action expected in the regular legislative session this month – have been welcomed by many participants in the state’s beleaguered homeowners market.

But speaking to The Insurer TV on the eve of the Bermuda Risk Summit 2023, O’Donnell said: “We’re very familiar with the legislative changes and, I think, at the margin, they’re helpful. They’re not significant enough for us to change our appetite, based solely on the legislative changes.

“I believe they will reduce volatility or variability in performance after an event. But the drivers for us will be pricing and the macro environment for Florida. [It’s] too early to tell as to exactly what we will do in the domestic market, but the legislative changes alone are not enough for us to change our appetite for Florida,” he confirmed.

Commenting more generally on Southeast US risk, the executive said there are a number of areas of focus for the reinsurer as it decides which cedants to back in what is increasingly a flight to quality among cat-exposed insurers.

“We are looking beyond just the risk curve that one can generate from somebody’s exposure files. We are looking at their ability to manage their claims … how they think about reserving, what is their financial strength, and what is their survivability from large events,” he said.

“And when we look at that, we rank all of the domestic carriers and we think about where we want to play. We have ownership in a couple, and we have strong relationships with several, but a lot of our risk at this point for the Southeast comes from larger players,” he explained.

Japan renewal more moderate

With negotiations gathering pace ahead of the Japanese renewal, one question has been whether the generational hardening seen in property cat at 1.1 would be followed by a similar level of increases and tighter terms at 1 April.

O’Donnell said that while rates are expected to go up in Japan, they will be moderated compared to what was seen at 1.1.

“I think the Japanese market trades differently than the broader global reinsurance market and I think it deserves to. If you look back after 2011, I think the Japanese market behaved admirably in thinking about how to structure and reprice programs and I believe the same thing will happen now.

“We have very strong relationships in Japan and I anticipate that we’ll be paid more for the risk that we’re taking, but we’ll emerge from the renewal with our relationships as strong if not stronger,” he predicted.

As previously reported, O’Donnell told investors on the reinsurer’s earnings call last month that it had accomplished everything it hoped for at the 1 January property treaty renewal.

That included a step change in pricing, change in terms and conditions and allowing the Bermudian to think differently about how it constructed its portfolio.

O’Donnell told The Insurer TV the recent renewal differed from other post-event market shifts such as 2006, when prices changed dramatically after Katrina because of a reset from the vendor models, which meant that nominal pricing changed significantly more than it did on a risk-adjusted basis.

“What has occurred this year is that the price change and the risk-adjusted price change are actually quite similar because there wasn’t the underlying adjustment in models.

“The reason prices needed to move as much as they did is that the perception of risk has increased, and investor tolerance to accept volatility has diminished. That combination requires them to be paid more for them to continue to participate in the market,” he explained.

The Insurer TV talks to Kevin O’Donnell

Listen to the first part of our Leading Voices interview with RenaissanceRe CEO Kevin O’Donnell for a far-reaching conversation on:

  • RenaissanceRe’s portfolio optimisation at 1 January
  • What was achieved on pricing, terms and conditions at the key renewal
  • How the Bermudian’s Capital Partners business were able to raise significant funds in 2022 and early 2023 even as others struggled to attract investors
  • Outlook for Japanese and Florida renewals
  • Flight to quality among cedants, reinsurers and ILS funds
  • Underwriting for inflation