Best’s Commentary: Florida Government Seeks to Repair Property Insurance Market

OLDWICK, N.J., December 08, 2022--(BUSINESS WIRE)--As Florida legislators prepare another special legislative session to help stabilize its troubled property insurance market, AM Best is of the view that without immediate and substantive long-term legislative reforms, the potential for further insurer insolvencies remains.

The Best’s Commentary, "Florida Government Seeks to Repair Property Insurance Market," states that many market participants and observers fear an acceleration in the state’s already declining capacity amid recovery from Hurricane Ian, which would drive up costs and worsen the state’s already precarious insurance market, which has seen six insurers declared insolvent since late February. The market disruption has resulted in substantial growth for the state-backed Citizens Property Insurance Corporation, which is not immune to rising claims costs and will be further strained by its own losses from Hurricane Ian. The new special session, which starts Dec. 12, follows one that took place in May in which Florida’s legislators attempted to address the crisis. According to the commentary, the provisions from that special session were somewhat positive, but did not go far enough to tackle market challenges.

"Public policy initiatives need to consider how to make Florida attractive to national insurers and reinsurers, to incentivize them to expand their appetite for Florida risks," said Sridhar Manyem, director, industry research and analytics, AM Best. "Absent that, a lack of competition may continue to fuel affordability issues for primary insurers with respect to reinsurance and consumers in need of basic homeowners’ coverage."

As the commentary notes, the state is dependent on Florida-focused specialist insurers, which have weaker balance sheets than larger national carriers. These specialist insurers are overly dependent on reinsurance for balance sheet protection and short-term capital. Reinsurance companies had been drastically reducing property catastrophe exposures in the state even prior to 2022 and may continue to pull back from the Florida property market or further increase pricing significantly, making reinsurance reach the limits of affordability.

"The outcome of the special legislative session could affect the capital allocation strategies of reinsurers that have to decide where to invest their dollars in the coming year," said David Blades, associate director, industry research and analytics. "Although claims stemming from Hurricane Ian at this point are lower than that of 2017’s Hurricane Irma, the rising reinsurance costs could reach a breaking point for many primary insurers in June 2023, when Florida property catastrophe reinsurance programs are scheduled for renewal."

The combination of a Florida’s catastrophe exposures in a highly litigious environment has resulted in a very high-cost homeowners insurance market for the state’s residents, and the higher-risk environment needs to be considered to ensure there are dollars available to pay insurance claims. Without changes to reduce the costs in the system and to better manage the impact of catastrophes, Florida specialist carriers may find it difficult to survive. AM Best views long-term solutions as the only way to attract large national players, as well as new capital, back to the market in earnest; however, carriers are unlikely to take such a step until necessary reforms have taken hold, and once prevailing rates are sufficient to cover the risks they must bear.

To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=326792.

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 London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2022 by AM Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Contacts

David Blades
Associate Director, Industry Research
and Analytics
+1 908 439 2200, ext. 5422
david.blades@ambest.com

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Sridhar Manyem
Director, Industry Research
and Analytics
+1 908 439 2200, ext. 5612
sridhar.manyem@ambest.com

Al Slavin
Senior Public Relations Specialist
+1 908 439 2200, ext. 5098
al.slavin@ambest.com