Covid-19 outbreak means big-ticket buyers have no alternative to purchasing expensive coverage from reinsurers

In the June-July renewal contract period reinsurance premium increases are double-digit for property and casualty risks. Premiums for director's and company officer's liability coverage are running at 75% increase levels and and US trucking fleet liability reinsurance premium rates tripling. 

"Tom Libassi of ILS Capital Management, which runs a group of reinsurance assets in Bermuda, attributes the hardened pricing to what insurers call “social inflation”, ie the willingness of people to take each other to court. Filing a lawsuit against an insurance company or lawyer is easier now, thanks to litigation finance companies that have raised capital-markets money in recent years. That has made writing liability coverage for large corporations much less attractive, therefore more expensive."

John Dizard Financial Times Aug 14 2020

Alternative reinsurance providers that entered the market now find themselves limited by the quirky Florida law whereby homeowners can assign storm damage claims to lawyers and other third parties. 

Dizard goes on to explain: 

Then, in a short period of time in 2017, three “named storms” in a row hit the US south-east, Puerto Rico and Florida. The last of these, Irma, proved the most problematic for the capital markets based insurers. The “Irma” claims have led to unexpectedly large “loss creep”, and are still wending their way through the Florida legal system. Since the “alternative” reinsurance providers have to provide specific collateral, ie investment grade bonds, to cover any possible claims until all the legal questions are resolved, there are tens of billions of “trapped collateral” from the alternative providers tied up at the mercy of Florida courts.

This benefits the traditional reinsurers but is also a spur to yet more new entrants but this takes time to jump the hurdles of compliance, capital financing and getting ratings. 

But in time.....

The Third Point/Sirius merger is one such case that had the timing right. 

Third Point Re had total assets of $2.5bn at the end of the second quarter in 2020; the combined company will have $6.1bn when the deal closes.