As the 2023 Atlantic hurricane season unfolds, the homeowners insurance market in Florida is grappling with a series of formidable challenges, according to a recent Moody’s report.
These include elevated catastrophe exposures, dwindling insurance capacity, surging total insured values, and more expensive reinsurance coverage.
While there was enough reinsurance capacity available for Florida’s insurers during the June renewals this year, the coverage came at significantly higher rates, putting pressure on the underwriting margins of primary insurers.
Compounding these difficulties is the ongoing recovery from Hurricane Ian claims, and now, the losses incurred from Hurricane Idalia, which struck the Gulf Coast of Florida as a Category 3 hurricane on August 30.
The market’s vulnerabilities arise from a convergence of factors: a heightened exposure to catastrophic events, rising property values, and elevated construction costs.
Homeowners insurers in the state have posted weak results due to increased catastrophe losses and substantial claims litigation expenses. In response, the State of Florida has taken various measures to stabilise the market.
These include implementing tort reform, offering new reinsurance support, and greenlighting primary rate hikes to attract underwriting capacity to the state.
The state’s insurer of last resort, Citizens Property Insurance Corporation, has witnessed a threefold increase in policy counts since the end of 2019. This growth has been driven by insolvencies among some Florida-only carriers and the withdrawal of private market participants.
Citizens has leveraged greater access to reinsurance coverage, new legislative reforms, and approved rate increases to position itself to gradually shift policies to the private market in the coming years.
However, the Florida Hurricane Catastrophe Fund (FHCF) faces a shortfall in resources compared to its statutory limit, following the substantial losses incurred from Hurricane Ian last year.
With an estimated $10 billion in losses, the FHCF enters the 2023 hurricane season with projected resources at less than half of the $17 billion reinsurance coverage it provides to state insurers.
In the event of losses surpassing its current resources, the FHCF would need to resort to post-event bond issuance to cover the gap.
Remarkably, reinsurers are displaying renewed interest in assuming Florida risk, drawn by the significant surge in pricing. Florida property catastrophe reinsurance costs have surged by 30% to 40% this year, building upon the robust pricing gains observed over the past few years.
These escalated prices, combined with stricter terms, higher attachment points, and more rigorous conditions, have enticed additional capacity into the market.
