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No-win situation for Florida insurers at renewal: ALIRT

10th May 2023 – Author: Matt Sheehan

Analysts at insurance research firm ALIRT have warned that insurers in the Florida market face a “no-win situation” when they come to renew their reinsurance this year.

The firm notes that rates at the upcoming June reinsurance renewals are estimated to potentially rise by up to 50% and could result in severe capacity constraints, given the substantial drop in overall reinsurance capital in 2022.

This means that even if an insurer is able to secure its desired reinsurance limit at renewal, it may well cost more than the company earns in gross premium, resulting in negative net written premium, analysts explained.

But on the other hand, for insurers that cannot obtain or afford their desired reinsurance limit, companies may be left open to potentially solvency-threatening storm losses, should they be large enough to exhaust the reinsurance protection procured.

“While the new legislative landscape for property insurers should address the non-catastrophe loss trend issues that have long weighed on this market, the current reinsurance landscape is fairly bleak,” ALIRT explained.

“While these Florida domestic insurers wait for the insurance reforms of 2022 and early 2023 to fruitfully work their way into income statements (which may take some time given a recent wave of lawsuits filed just before the newest became effective in late March), they will need to keep their fingers crossed on the catastrophe-front – never a great strategy,” it continued.

“Given all of this, we foresee that financial pressure on the Florida domestic insurer market is unfortunately likely to persist.”

ALIRT also suggests that last year’s Hurricane Ian may have been the ‘straw that broke the camel’s back’ in terms of its impact on the Florida reinsurance market.

Given that reinsurers ended up absorbing a large proportion of the $45-50 billion of insured catastrophe losses that stemmed from this event, analysts believe that Ian likely accelerated a capacity and rate crisis that had already been in the making given outsized global cat losses in five of the past six years.

“The current retrenchment of reinsurance capacity available to the Florida property market, and attendant spike in cost for that which exists, is only partially tied to the man-made legal and claims abuses that contributed to years of poor underwriting results,” ALIRT concluded.

“Much more pertinent is the growth of larger and more frequent weather- related perils that many now attribute to climate change. In short, Florida’s unique geographic exposure to hurricanes and other secondary weather events, rapid growth as a retirement/life-style/tax-haven destination (which has driven both the amount and price of real estate), and suppression of actuarially sound property insurance rates, has proven a recipe for chronic (re)insurance losses.”

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