- Reinsurers’ losses paid to Florida specialists increased more than fourfold in three-year period despite no significant storms
- These specialist insurers are defined as regional insurers domiciled in Florida with predominant exposures to personal property insurance in the state
Losses paid by U.S.-domiciled reinsurers to Florida personal property specialist insurers has soared in the past three years, increasing more than fourfold and topping $1 billion in 2021 despite the absence of significant hurricane activity, according to a new AM Best commentary.
AM Best, the largest credit rating agency in the world, released its commentary on Thursday, titled “Reinsurer Losses Related to Florida Specialists Continue to Climb Despite No Significant Storms,” which states that insurers AM Best has identified as Florida specialists continue to cede a growing amount of premium to reinsurers, reaching over $7 billion in 2021.
AM Best defines specialists insurers as regional insurers domiciled in Florida with predominant exposures to personal property insurance in the state. Roughly 60% the premium ceded by this population is reinsured by U.S.-domiciled companies, with more than half the remaining ceded to Bermuda.
The report also found that premiums assumed by U.S. (re)insurers have grown roughly 66% the last three years, with the loss ratio spiking despite moderate hurricane seasons. AM Best noted that the spike has resulted in current prices not being adequate enough to cover the claims of inflation and fraud in the market. The agency added that reinsurers have been pulling back from the Florida property market or significantly raising prices.
“These events have led to a temporary reinsurance arrangement through Citizens Property Insurance Corporation being established,” said Jason Hopper, associate director, industry research and analytics. “Given the surge in Citizens’ growth on a direct basis, and now with its role as a backstop reinsurer, Citizens’ reinsurers may also see additional risk.” Eight reinsurers account for over 86% of premium ceded by Citizens, with the Florida Hurricane Catastrophe Fund accounting for nearly 44%.
Florida personal property companies report significantly elevated ratios related to their dependence on reinsurance, highlighting their sensitivity to reinsurance pricing. AM Best says pricing will continue to impact business plans and companies’ ability to use reinsurance structures with adequate limits to protect against severe storms.
Additionally, AM Best expects reinsurers to remain selective in the risks they reinsure, placing further burdens on the Florida homeowners market, which has seen four property insurers, along with a Louisiana-based insurer that wrote policies in Florida, declared insolvent since late February.
If this the case, then what will happen when significant catastrophes do occur? Something’s not right if less significant events are causing insurers to breach reinsurance layers. DOIs are supposed to protect consumers from insurance company failures by monitoring insurance companies’ performance and market conditions and take necessary action to correct.
Judging by the poor insurance situation and ongoing carrier failures, we can easily deduce that the Florida DOI has miserably failed in their mission.
The insurance industry is in business to make money, no one will disagree with that. They usually do a very good job making money, no one will disagree with this point as well. Ergo, when insurance companies fail as they are doing in Florida, one has to wonder, “why?”
The short answer is, insurance companies are paying more out than they are collecting in premium. Going back to my original point, why are claim payments during less severe catastrophe years breaching excess layers?
Without going into a dissertation of the many possibilities, the primary driver is out of control costs. Attorneys, public adjusters, contractors, others, all wanting a piece of the golden goose drive up claims values beyond what they are worth. Florida laws empower unscrupulous behavior rather than prohibit.
Even now, during this crisis, all attempts to implement legal limits have been unsuccessful. Until mass reformation of pro-plaintiff rules/regs occur, the insurance situation in Florida will only worsen.