Abundant reinsurance capacity at ever-decreasing pricing has been a lifeboat for Florida insurers at the 2017 second quarter renewals, after their profitability has been shaken by rising water-loss and fraudulent AOB claims, the Kroll Bond Rating Agency (KBRA) highlighted in its Floridian market report.
Floridian primary insurers were given a much-needed boost by catastrophe reinsurance availability being at an all-time high and pricing at or near its lowest point in decades at this year’s June renewals.
Reinsurance rates fell for the sixth consecutive year, and several Floridian insurers have already confirmed improved reinsurance prices and terms.
Quoting JLT Re estimates, KBRA reported that “for this renewal cycle, JLT Re’s index that tracks reinsurance prices decreased by 5.1% with changes ranging from zero to minus 10%.
“The latest rate decrease means pricing for Florida business is now approximately 40% down on 2012 levels and only 10% above the previous cyclical low of 1999-2000.”
And with the 2017 Atlantic hurricane season now adding to the above average non-hurricane losses insurer’s have been hit with, reinsurance has become an increasingly vital component of primary insurers’ profitability in a very challenging business environment.
KBRA said Florida insurers have also benefited from “ongoing issuances of catastrophe bonds and the strengthening of the Florida Hurricane Catastrophe Fund as a component of their reinsurance structures.”
Nevertheless, KBRA warned the financial stability of some insurers could still be threatened “without significant reform, including possible legislative action on AOB,” and policies may return to the largest insurer in the state and not-for-profit Citizens Property Insurance Corporation.
Bob Betz, executive vice president of JLT Re in North America, stated: “While the pace of average rate reductions accelerated at June 1, 2017 compared to last year, the results were very much determined by cedent size and performance.
“After a difficult 18 months for the Florida insurance market, where attritional losses and mounting litigation related to AOB claims contributed to approximately 40% of state insurers suffering underwriting losses in the first quarter of this year, smaller companies with capital surplus of less than $25 million in particular have come under increased rating agency pressure.
“At a time when markets are focusing on performance, these carriers generally saw less favorable outcomes in both price and reduced line size.”
Christopher Gardner, chairman of Citizens’ board of governors, said, “without significant reform, litigation, water claims and AOB pose a serious threat to the financial position of Citizens. This is not a sustainable situation.”
“Citizens will be forced to pass those higher costs on to its customers in the form of higher rates for the foreseeable future.”
KBRA said the private insurance market is in a similar position; faced with filing for rate increases mostly due to the AOB epidemic, and data shows this trend will continue to grow, unless Florida shareholders can work together to take serious mitigating action.