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Floridian insurers maintain ratings through varied forms of adaptation: Demotech

3rd April 2020 - Author: Luke Gallin

Despite myriad challenges facing Demotech rated carriers in the State of Florida, insurers have evolved to maintain Financial Strength Ratings (FSRs) of A or better, and have also expressed their commitment to Florida’s residential property insurance marketplace.

FloridaDescribed by Demotech as the most complicated, dynamic insurance marketplace in the U.S., the Florida residential property arena experiences pressures from numerous angles. This includes the same challenges as many other parts of the world, such as natural catastrophe risks, but also some more unique exposures like the region’s well-documented assignment of benefits (AOB) issue.

In a recent note around its rated carriers in the Florida marketplace, financial analysis firm Demotech highlights the numerous challenges facing the state.

“Jurisdictional and weather-related challenges are two obvious issues facing the Sunshine State. A substantial increase in reinsurance costs during 2019, another likely increase in the cost of reinsurance in 2020, plus the cost of the Rapid Cash Buildup Program of the Florida Hurricane Catastrophe Fund are others,” says the firm.

Around the time of Thanksgiving, Demotech commenced its review of year-end 2019 financials and alongside calling for FY19 projections, asked companies whether they would remain focused on the Florida residential property market and, if so, how business models would be revised to address market conditions.

“Carrier responses included documentation of their jurisdictional diversification, voluntary runoff, marketing existing books of business to other carriers, merging affiliates, or securing assistance to answer our questions and avoid a downgrade.

“Other carriers aggressively enhanced the capability of their business models to respond to the anticipated continuation of jurisdictional and weather-related challenges, the substantial increase in reinsurance costs during 2019, the likely increase in the cost of reinsurance in 2020, and the cost of the Rapid Cash Buildup Program of the Florida Hurricane Catastrophe Fund,” explains Demotech.

Adding, “The management teams of these carriers have fought the conditions in the most difficult operating jurisdiction in the country to a draw. They have addressed the needs of policyholders, investigated and settled claims, paid their employees, producers, and reinsurers, met with us, negotiated with reinsurers for their 2020 programs, and filed timely financial statements in an orderly manner.”

In recent years, the operating performance of firms in the Florida residential property market has been hit by costly storms, elevated reinsurance rates, and also prolonged judicial activism. Demotech notes that currently, the impact from the global COVID-19 outbreak, which is intensifying in many parts of the U.S., remains unknown.

But despite the challenges and additional uncertainty, Demotech says that the boards and management of dozens of residential property insurers have told the company that they remain committed to the space and are eager to be part of the market’s solution.

“From our perspective, the glaringly evident is that conditions in the current residential property insurance market in Florida need to be re-evaluated and, when necessary, re-positioned to focus on the overwhelming majority of Floridians who purchase and procure insurance coverage yet never have a claim. Then and only then will an ecosystem designed to protect Floridians from natural disasters be able to protect Floridians from the rigors of the most complicated, dynamic insurance marketplace in the US,” explains Demotech.

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