As United Insurance Holdings works to finalise its June 1st catastrophe reinsurance renewal, Chief Executive Officer (CEO) Dan Peed has said that the Florida residential cat market remains extremely hard, warning that it will take some time for reinsurance companies to get comfortable with the exposures and challenges.
The property and casualty (P&C) insurer reported its first quarter 2023 results yesterday, posting an improved combined ratio and net income, while premiums also grew during the period.
Speaking during the carrier’s earnings call, CEO Peed discussed the complex and challenging Florida marketplace, as well as the firm’s June 1st, 2023, reinsurance renewal, which is almost complete.
Commenting on the Florida market, Peed said that he believes that the legislative changes made in both May and December 2022 “will prove to be an effective litigation of some of the excessive litigation issues in Florida over the last half dozen years.”
He explained how the removal of one-way attorney fees and the assignment of benefits, as well as other changes such as the time to report being cut to one year, will eventually work their way through the system, ultimately serving to reduce loss costs and subsequently insurance premium rates.
In fact, according to Peed, industry estimates suggest that these reductions will be as much as a 25% decline in loss rates, which is significant.
“However, it will take some time for these changes to work their way through the system, but they do appear to have mitigated some of the investor and reinsurer negative sentiment surrounding the future Florida exposure,” he added.
Last year, the P&C insurance holding company announced that it was placing its personal lines subsidiary, United Property & Casualty Insurance Company, into run-off following a strategic review by the Board.
Peed noted at the time that a key part of the decision related to the firm’s ability to procure reinsurance as numerous providers of capacity pulled back from Florida amid elevated cat losses and rising loss costs, exacerbated by the unique challenges plaguing the state’s property insurance sector.
With United P&C placed into run-off, the company is transitioning to a commercial specialty insurer, and still serves the Florida market via its American Coastal Insurance Company (ACIC) subsidiary.
The June 1st, 2023, reinsurance renewals are fast approaching, and while the Florida marketplace remains extremely hard, Peed noted that for ACIC’s reinsurance renewal, the market has been supportive with capacity, although, as expected, risk-adjusted rate increases are up.
“For American Coastal, we are effectively done with over 100% of the limit authorized and the structure outlined in our investor supplement,” said Peed. “This creates first event hurricane protection exceeding the 160-year return period on a first event basis. Also, with our American Coastal footprint limited to Florida, we will have significantly reduced frequency exposure.”
The investor supplement details ACIC’s projected 2023/2024 catastrophe reinsurance program. For the year ahead, the program provides roughly $1.1 billion of occurrence-based limit, protecting the firm to the 163.9 year return period. The program has a $10 million retention, and all in all, the firm procured private market occurrence limit of $367.25 million, of which $236 million is reinstatable that provides protection for multiple events.
The program also features a mandatory Florida Hurricane Catastrophe Fund (FHCF) layer, placed at 90% of $605.2 million attaching at $305.1 million.
Additionally, for the 2023/2024 ACIC program, United purchased Florida Optional Reinsurance Assistance limit, which is structured in three layers, providing coverage of $87.1 million attaching at $218 million of losses.
“It is important to point out that our FHCF and our Florida capacity sits much higher in the structure than typical Florida residential books and provides greater than 60% of American Coastal’s first event limits, which dilutes the impact of private market rate increases. Our ACIC occurrence retention is expected to be $10 million although we expect to modestly expand the group retention through use of our captive,” said Peed.
“In conclusion, the Florida residential cat market remains extremely hard. It will take some time for the reinsurers and investors to get comfortable with the exposures and challenges that Florida offers.
“While this creates challenges in our reinsurance placement, it also creates an excellent opportunity for both our reinsurers and American Coastal with the number one market share for admitted commercial residential exposure in Florida. I expect the market to remain hard for both the near and the intermediate terms,” he added.
