- 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.