Reinsurance Pricing, Pandemic Add to Woes for Florida Property Insurers

The numerous issues in Florida’s property insurance market, including higher reinsurance pricing and social inflation, continue to challenge the financial strength of Florida personal property writers and impact coverage availability and affordability in the state. These headwinds, according to a new AM Best report, have become more complex amid the COVID-19 pandemic.

The Best’s Market Segment Report, “Multiple Threats Flank the Florida Property Insurance Market,” states that despite the absence of a major hurricane in 2019, the combined ratio of 51 Florida-domiciled personal property insurers analyzed for this report, excluding Citizens Property Insurance Corporation, was 107.7, remaining essentially flat compared with 2017-2018, when two major hurricanes made landfall. In response to Florida’s challenging operating environment, reinsurers are increasing rates by an expected average of 25% or higher, and individual company rates vary considerably based on loss experience, risk appetite and financial condition.

Even before the pandemic, Florida insurers faced an uphill battle with the hardening reinsurance market.

“Reinsurers have incurred considerable assumed losses in the past several years, owing to hurricane activity and rising claims severity brought on by social inflation,” said Chris Draghi, senior financial analyst, AM Best. “This loss creep could continue over the next few months, as the three-year statute of limitations to report a Hurricane Irma loss approaches in September.”

Many Florida personal property writers focus on lines of business that have been relatively unaffected by the COVID-19 pandemic, with regard to covered losses (i.e., homeowners, fire and allied lines), according to the report. AM Best expects any pandemic impact to be moderate, given that most carriers with commercial policies require physical loss or have exclusionary language for viruses.

“However, the economic downturn has the potential to influence premium collection, which would affect cash flow and liquidity,” Best said.

The market has experienced some relief from long-standing assignment of benefits issues, but it also has seen some casualties owing to several consolidations and liquidations. An increase in storm activity could lead to more accumulated insured losses, and the COVID-19 crisis has the potential to amplify damages.

Compounding the situation is the need for insurers to purchase prudent reinsurance catastrophe protection despite the elevated costs. Should insurers be unable to do so economically, more capital may be at risk, diminishing overall balance sheet strength.

Best said insurers it rates “have developed ways to mitigate exposure by managing their geographic distributions and risk accumulations, in addition to strengthening their underwriting guidelines and raising rates.” The rating process includes consideration of the current market’s impact on ratings, but also the potential responsiveness and execution of corrective plans to circumvent pressures in the future.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.

Source: AM Best