Florida (FL) homeowners insurers’ underwriting margins are forecast for expansion next year, with assignment of benefits (AoB) related loss inflation expected to stabilise and Florida insurers passing reinsurance rate increases onto policyholders, according to Keefe, Bruyette & Woods (KBW).
Although Florida insurers will see reinsurance rates rise, KBW said they can pass rate increases to their policyholders, which should mitigate any adverse margin impact.
Each of the five public Florida insurers having already filed or received approval for rate increases.
KBW noted that UVE’s +3% increase meaningfully trails its peers +9% average, likely reflecting its much stronger margins.
“We note that relatively small primary rate increases are needed to offset reinsurance rate hikes. For example, assuming a 35% ceded premium ratio (i.e., the portion of a primary insurer’s gross premiums paid to reinsurers) and a 12% commission ratio (i.e., the portion of a primary insurer’s gross premiums paid to agents), a primary insurer would only need to raise their own rates by 4% to offset a 10% reinsurance rate increase,” KBW explained.
Florida’s legislature is expected to target AoB fraud, but KBW believes it’ll take another year of compounding rate increases before voters force politicians to address the issue.
The Florida Hurricane Catastrophe Fund (FHCF), a state-run reinsurer which is driven by its own capital needs rather than market-dynamics, provides a large amount of Florida property insurers’ reinsurance.
KBW believes it’s unlikely the FHCF will raise rates significantly, if at all, during 2018 renewals.
In addition to this, with only about 15% of Florida insurers’ respective reinsurance towers having been exhausted by hurricanes Harvey and Irma, and a portion of their coverage being purchased on a multi-year basis, carriers will be further insulated from reinsurance rate increases.
KBW forecasts for the 2018 property catastrophe Florida market are positive, it’s a sector predicted to grow as AoB-related loss inflation stabilises in the near-term future, rates increase, and multi-state expansion efforts gain traction.