According to a recent report by ratings agency AM Best, reinsurer losses related to Florida specialists continue to climb despite the fact there have been no significant storms in the region.
Florida’s personal property specialists show a significantly higher dependency on reinsurance than the industry average, says Best, with premiums assumed by U.S. re/insurers having grown roughly 66% over the last three years.
Losses have increased fourfold over the same period, even without significant hurricane activity, notes AM Best.
This comes against the backdrop of a struggling Florida property insurance market, which Best states has deteriorated due to the greater frequency of secondary perils, rising reinsurance costs, escalating litigation, and building codes that have been exploited by parties looking to profit.
It adds that four property insurers domiciled in Florida have been declared insolvent since late February, in addition to a Louisiana-based insurer that wrote policies in Florida.
Amid the turbulence, the Florida Office of Insurance Regulation (OIR) announced on July 27th a plan to establish a temporary reinsurance arrangement through Citizens Property Insurance Corporation, in the event of rating downgrades.
Best said, “Given the surge in Citizens’ growth on a direct basis, and now its role as a backstop reinsurer, Citizens’ reinsurers may also see additional risk.
“Eight reinsurers account for over 86% of premium ceded by Citizens, including the Florida Hurricane Catastrophe Fund, which accounts for nearly 44%.”
In addition, insurers that AM Best has identified as Florida specialists continue to cede a growing amount of premium to reinsurers, reaching over $7bn in 2021.
It notes that roughly 60% of the premium ceded by its Florida specialist insurer population is reinsured by US-domiciled companies, with more than half the remaining ceded to Bermuda.
Best added that due to significant losses in Florida in recent years, some reinsurers have been evaluating their own aggregate exposures and capital allocation targets.
After the Florida Hurricane Catastrophe Fund, Berkshire Hathaway captured the most premium from the FL specialist companies, says Best, roughly 8%, while ten reinsurers accounted for half the reinsurance.
It observes that despite increases in assumed premium in recent years, the exposure still accounts for less than 2% of the assumed premium for Berkshire Hathaway.
“Other exposures to Florida property would likely heighten these ratios, but given that the vast majority of companies have exposures of less than 5% to these companies, total current Florida exposure is still likely manageable for reinsurers. Still, reinsurers are likely to remain selective in the risks they reinsure, placing further burdens on the Florida homeowners market,” said the ratings agency.