Florida is the US state with most premiums in homeowners insurance lines, AM Best analysts have revealed.
Despite being only the third more populous state, it generated $12.4 billion of homeowners direct premium in 2021. That is more than California, the most populous state, with $11.2 billion of homeowners direct premium, and second-most-populous Texas, with $11.9 billion, according to BestLink.
Analysts highlighted that Florida’s storm-prone location and challenging litigation environment keeps it prominent among US states for losses and cost of homeowners insurance.
AM Best said: “Total direct premium for homeowners’ carriers in Florida continues to grow, rising 11.7% from 2020 to 2021. Florida’s rise was the fourth-largest one-year percentage increase in 2021, behind California and fast-growing Idaho and Montana. Direct premium for homeowners carriers, total United States, reached $119.7 billion in 2021, an 8.4% rise from 2020.”
Analysts have also found that due to market dynamics over the past year, some carriers have had to re-evaluate their approach to Florida property exposures.
For example, in July 2022, Bankers Insurance Group announced it was filing to exit homeowners business in Florida citing in a letter its concerns about maintaining its ability to meet Government-Sponsored Enterprise requirements, such as Fannie Mae and Freddie Mac.
Shareholder-owned GSEs were chartered by the U.S. Congress to facilitate mortgage and agricultural lending, including the Federal National Mortgage Association, commonly known as Fannie Mae and Federal Home Loan Mortgage Corporation, or Freddie Mac. They incorporate references to AM Best designations in their insurance evaluation materials.
Freddie Mac sets a requirement that AM Best-rated insurers and reinsurers must possess a Financial Strength Rating of B+ or better, and nonadmitted insurers must hold a minimum rating of A (Excellent).
Fannie Mae requires AM Best-rated insurers and reinsurers hold an FSR of B (Fair) or better.
Bankers Insurance Group is not the only one that has decided to retreat from Florida’s homeowners market, as it has been joined by 13 other companies who have stopped writing home insurance in the state this year, according to Mark Friedlander of the Insurance Information Institute.
Three have since become insolvent, Friedlander added. Of the remaining 10, three have said that they are voluntarily exiting homeowners lines in Florida.
The remaining seven have called the moratorium on new business temporary but haven’t said when they could resume writing. Many cite state legislative inaction to disincentivize trial attorneys from filing suit against property carriers, said Friedlander.
The rating agency also noted how dependent insurers operating in Florida are on reinsurance. AM Best said: “Each year, insurers operating in the Sunshine State cede billions of premium dollars in reinsurance.
“Business retention rates, defined as the percentage of a company’s gross writings that are retained for its own account, range from low single digits to 100%. Much of Florida’s reinsurance support comes from reinsurers based in Bermuda.”
It added: “AM Best defines Florida personal property specialists as regional insurers domiciled in Florida with predominate exposures to Florida personal property insurance. The commentary found ‘Florida’s personal property specialists show a significantly higher dependency on reinsurance than the industry average’.”