Florida’s insurance market has made a significant turnaround during the 2023 mid-year renewal, providing a much-needed boost to the state’s insurers, according to Aon’s Reinsurance Market Dynamics report.
Despite worries following Hurricane Ian about a possible shortage of capacity for Florida-based insurers, catastrophe reinsurance capacity was accessible during the mid-year renewal, albeit at a cost.
Compared to 2022, Florida entered the renewal in a stronger position, due to several positive factors that contributed to market stabilisation and attracted new capacity. One of the most influential factors was the implementation of state tort reform, which aimed to address abuses within the legal system.
As tort reform begins to take effect and lower overall loss costs, it is expected to attract insurance and reinsurance capital back into the market.
Additionally, improved terms and conditions resulting from the reform are likely to attract additional reinsurance capacity to the state in the future.
Despite being early days, there are encouraging signs of future growth opportunities for insurers and reinsurers in Florida. The continued growth of Florida’s windstorm insurer of last resort, Citizens Property Insurance Corporation, creates opportunities for profitable depopulation, which can further stimulate the market.
Capacity for Florida-domiciled insurers played out as expected, with overall availability, especially in the upper layers where some programs were overlined. The improved certainty and price increases prompted reinsurance capital to flow back into Florida, with several markets stepping up to provide more significant support.
The mid-year renewal also benefited from the certainty of state reinsurance support programs. The finalised Florida Optional Reinsurance Assistance Program (FORA) legislation and the Reinsurance to Assist Policyholders (RAP) program, signed into law in May 2022, provided valuable support.
Insurers that deferred RAP last year benefited from increased capacity in the lower-middle program layers, where capacity was most constrained. Although only a small number of insurers accessed FORA capacity, the program served as a useful backstop to the traditional reinsurance market, allowing insurers to plan around it.
However, challenges remain, particularly regarding prior accident year results. To effectuate commutation, companies were required to file their final proof of loss for Hurricane Irma with the Florida Hurricane Catastrophe Fund before June 1, 2023.
Adverse developments following the final settlement with the FHCF could potentially result in unexpected net retention for insurers, considering most of them inure their FHCF coverage to their open market coverage towers on a deemed limit basis.
Captive reinsurers continued to play a meaningful role at the mid-year renewal, alleviating pressure on the lowest layers of insurer programs. With a relatively low frequency of catastrophe losses in Florida, the profits generated from low layer captive deals in 2022 were rolled into 2023, providing valuable capacity for insurers.
