Given hardening reinsurance rates and increased retentions, Hurricane Idalia’s effect on reinsurers will be minimal and is expected to be an earnings event for the insurance industry, according to AM Best.
Idalia’s fierce winds, torrential rain, and the resulting storm surge battered Florida’s Gulf Coast before continuing onto Georgia and South Carolina. This, analysts have stated, caused significant property damage that will result in sizeable losses for the insurance industry.
Moreover, in addition to above average cat losses for the first half of the year from severe convective storms and secondary perils, AM Best expects underwriting results for 2023 to remain under pressure.
Taking this into account, analysts have concluded that the impact of the latest hurricane on reinsurers will be minimal, mainly given the hardening reinsurance market conditions and increased retentions, as noted before.
The ratings agency also noted that, as the Florida property market has become more concentrated in only a few companies – and others have retired from the market – they may capture more market share thanks to their risk reduction efforts.
In the last two years, the Florida property market has become more concentrated, with only 15 companies accounting for over 60% of property direct premiums written (DPW) in the state, compared with 58% in 2020.
Citizens Property Insurance Corp.’s premium growth has nearly quadrupled over the last two years, to $3.2 billion in 2022 from $774 million in 2020, causing its market share to more than double to 9.8%, analysts have pointed out.
While some market players, like Farmers Insurance Group, have announced they would no longer renew policies in Florida; others, like State Farm, are maintaining their current presence, leading to ongoing market share movement.
“As a result of risk reduction efforts from some companies, Florida personal property specialist companies, which account for nearly 37% of Florida property DPW, may capture more market share,” said AM Best.
At the same time, the credit rating agency noted that while the total amount of ceded premium to non-US captives by Florida personal property specialist insurers decreased in 2022, mainly due to one company, other companies have increased their use.
“However, only two Florida personal property specialist companies cede more than one-fifth of their total ceded premiums to non-US captives. In addition, less than 4% of the total ceded premium by the Florida personal property specialist companies is ceded to non-US captives,” analysts explained.
Adding: “The use of captives may be attributed to insurers trying to fill in gaps with reinsurance protection in the traditional reinsurance market. Nonetheless, ceded leverage remains elevated along with an element of credit risk. Because of the significant losses in Florida in recent years, some reinsurers have been re-evaluating their aggregate exposures and capital allocation targets.”
Last year, the losses paid by US reinsurers as a share of premiums assumed from Florida personal property specialists continued to rise. Reinsurers are likely to remain selective about the risks they reinsure, which AM Best highlights, will further challenge the Florida property writers.
Still, Florida personal property specialist exposure represents less than 5% of the vast majority of each reinsurer’s total portfolio.
