Fitch Ratings has suggested the pricing uncertainty and possible lack of reinsurance coverage in 2023 following Hurricane Ian may lead to a reduction in the number of Florida private homeowners specialists, highlighting the mounting pressure on state-sponsored Citizens to expand its underwriting exposure base.
According to the rating agency, Florida homeowners’ specialists were already experiencing yet another year of large underwriting losses in 2022, even before the event of Hurricane Ian.
Fitch observes that a compilation of statutory results for a group of 24 Florida homeowner specialist groups reveals reported combined ratios of over 100% each year, with an average of over 115% from 2017 to mid-year 2022.
Meanwhile, reinsurers and investors in alternative capital vehicles, including catastrophe bonds, sidecars and collateralised reinsurers, sustained material losses over these years, which in turn has led to carriers reconsidering whether to provide future underwriting capacity to the Florida market.
Fitch writes, “Florida specialists absorbed significant losses from Hurricane Irma in 2017 and more modest losses from Hurricane Michael in 2018.
“However, results worsened in the latest three years due to significant adverse development of these hurricane-related losses from initial estimates for some carriers. Claims costs remain materially affected by assignment of benefits practices and an expanding proportion of homeowners’ claims with litigation.”
Losses, alongside adverse changes in the availability/cost of reinsurance, contributed to insolvencies or market exits by eight Florida homeowners specialists in the last two years, says Fitch.
Now, following Ian, tighter reinsurance market conditions in 2023 may lead to further reductions in the number of carriers.
Fitch adds that the effects on incurred losses and expenses from regulatory and litigation reforms enacted in the last year are too early to gauge, though, unfavourable profit conditions and market sentiment are expected to deter new primary insurers from entering the space to fully replace these exits in the near term.
Therefore, pressure is on the state-sponsored insurer Citizens to expand its underwriting exposure base, says Fitch.
The rating agency does however state that there is another special state legislative session scheduled for mid-December, which will focus on actions to stabilise the Florida homeowners’ market and may include further assignment of benefits and distribution of legal costs reforms.
