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Validus Re to remain 'prudent' on Florida despite 'significant' rate hardening expected

Despite the improving profitability of Florida business, Peter Zaffino says 'we do not expect to deploy additional limits beyond our current aggregate allocated to Florida'

AIG-owned short-tail reinsurer unlikely to deploy additional limit to the hurricane-exposed state, as net premiums up 40% in the first quarter of 2023, Zaffino says

Global reinsurer Validus Re will not increase its Florida wind exposure at the forthcoming June renewals, despite expected “significant” market hardening, its parent company AIG’s chief executive, Peter Zaffino.

Zaffino said Validus Re will continue to maintain a “prudent approach on limits deployed” at the Florida renewals.

“We do not expect to deploy additional limits beyond our current aggregate allocated to Florida, although we do anticipate significant rate increases and improved terms and conditions,” he told analysts.

Bermuda-based Validus Re also took a measured approach to the Japan-focused April 1 renewals, increasing premiums written although inter­national property limits were “slightly reduced”, Zaffino said.

Other reinsurers are also approaching the Florida market with care, given the severe challenges it has faced over the past year in the wake of hurricane losses and rising reinsurance rates.

This is despite the improving profitability of Florida business, with modelled returns expected to exceed those seen at the January 1 renewals, according to Everest Re head of reinsurance, Jim Williamson. Average rates on line for US property catastrophe business rose 50% at January 1, brokers reported.

“The headline rate increases [at June 1] may not be as large, because we already took significant rate in 2022, but the economics of those programmes should be outstanding,” Williamson said.

“As long as that is proven to be true, we’ll continue to deploy a similar level of capacity to that market as we did in the prior year,” he added.

RenaissanceRe chief executive, Kevin O’Donnell, said the company will take a “cautious approach” to the Florida domestic market. “We are watching this market closely and any changes to our view will depend on the rate environment,” he said.

But Swiss Re has “appetite” to capture “additional opportunities” at June 1, the reinsurance giant’s chief financial officer, John Dacey, said.

Short-tail specialist Validus Re increased net written premiums 40% in the first quarter of the year, as it took advantage of the improved market conditions at the January 1 renewals and increased its probable maximum loss (PML) slightly.

“Net premiums written were very strong and balanced in Validus Re and we continue to meaningfully improve the quality of the portfolio,” Zaffino said.

Rate improvements were particularly strong in US property, international property, marine and energy, casualty and specialty lines.

“Like General Insurance, the Validus Re portfolio has been completely re-underwritten with a focus on risk-adjusted returns. The business had a terrific first quarter and is well positioned for profitable growth through the rest of the year.”

The expansion of Validus Re’s PML in the first quarter is in contrast to AIG’s wider approach to catastrophe risk, which has been to reduce exposures. “Overall, PMLs are down year-on-year,” Zaffino said.

AIG “dramatically” cut the PMLs in its private clients business across all perils and all returns periods, particularly on wildfire, Zaffino said. The group also reduced the PMLs at its surplus lines carrier Lexington and in its global specialty business.

Zaffino was speaking to analysts after AIG’s general insurance business reported its strongest first-quarter underwriting performance on record, driven by commercial lines.

The segment’s underwriting income rose 13% to $502m, as the combined ratio improved one point to 91.9%, with the commercial lines ratio improving 1.7 points both in the US and internationally.

The better underwriting result and higher investment income led to general insurance adjusted pre-tax income rising $37m to $1.2bn in the quarter.

On a constant dollar basis and adjusted for the international lag elimination, net premiums written increased 10%, driven by strong growth in North America commercial, led by Validus Re and Lexington and in global specialty lines.

North America commercial lines rates, excluding workers’ compensation, re-accelerated with an 8% increase in the quarter, while international commercial pricing also increased 8%, in each case exceeding loss cost trends, AIG said.

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