Depopulation of Citizens continues, commercial policies could be next

Efforts to shrink Florida’s Citizens Property Insurance continue to see the property insurer of last resorts homeowner policy base moving back into the private insurance market and the next step could be to depopulate commercial policies as well.

On the 4th of March, the Florida Office of Insurance Regulation approved three more insurers to take as many as 75,000 policies out of Citizens hands. All three companies have taken policies from Citizens before and this will see them all increase their exposure to Florida property catastrophe risks, which will result in a need for increased reinsurance protection.

The insurers involved in this latest depopulation effort are; Southern Oak Insurance, which has been approved to take up to 10,000 policies, Elements Property Insurance Co. for up to 40,000 policies; and, American Integrity Insurance Co. of Florida approved for up to 25,000 policies.

Interestingly Southern Oak Insurance is the rumoured sponsor of the Oak Leaf Re catastrophe bonds, so this could see the insurer looking to expand its capital markets protection in renewals to come once it has assumed the additional policies from Citizens.

The other two insurers will also be looking to increase their reinsurance protection and the collateralized markets and catastrophe bonds may become recipients of more Florida risk as these insurers increase their exposure by taking on more risk from Citizens.

The depopulation of Citizens, both through the passing on of policies to insurers such as this as well as the clearinghouse which allows private insurers to quote for Citizens business, has seen the number of policies underwritten by Citizens shrink to below a million for the first time since 2006.

This success has now led the Florida Senate to look at legislation which would expand the depopulation efforts outside of homeowners policies and into the commercial insurance space. Lawmakers see the possibility to shrink Citizens even more by including commercial lines business within the clearinghouse.

Interestingly while commercial residential policies only represent 2% of Citizens policy count they apparently account for as much as 20% of Citizens probable maximum loss from hurricanes. That should bring depopulating the commercial business Citizens holds up the priority list somewhat.

The market for commercial residential property insurance in Florida is much smaller than the personal residential market, with commercial cover a much more complex beast. However any efforts to depopulate Citizens of these risks will likely be welcomed by the private market which is seeking new opportunities.

The Senate Banking & Insurance Committee has approved a bill known as SB 7062 which would reduce the amount of commercial risk held by Citizens and allow surplus lines insurers to access a Citizens clearinghouse for certain commercial property policies.

This is the first time surplus lines insurers would be allowed access into the Citizens clearinghouse, to date it has only been admitted carriers which have been allowed to bid for policies.

Reinsurers would certainly benefit from the commercial risk depopulation, as it increases the private insurance market which in turn shifts more risk to private reinsurance firms and the capital markets. Reinsurers stand to benefit at the upcoming mid-year reinsurance renewals as the amount of risk in the hands of private insurers will be up on the year before.

According to this article from Insurance Journal, private insurers have received approval to depopulate up to 334,341 policies from Citizens in 2014 so far, of which 89,469 have been removed already.

Another piece of legislation which may prove interesting to watch and could result in more risk in the private insurance and reinsurance market is an effort to make it easier for insurers to take on more Florida flood risk. SB 542 would make the application process to become a flood insurer much simpler.

Qualifying insurers would be required to offer flood coverage on a par with the NFIP but the bill would also prohibit Citizens from providing flood cover and prohibit the Florida Hurricane Catastrophe Fund from covering losses caused by flood, measures that would result in greater private market participation.

Add this continuing depopulation to the other efforts in Florida to shrink or better protect the Florida Hurricane Catastrophe Fund and there should be an increased pool of opportunity at the Florida reinsurance renewals. It will be interesting to see just how much headway the ILS and alternative reinsurance capital market can make at the renewals and just how hard traditional reinsurers compete for this new business.

Read other articles on the changes in the Florida insurance and reinsurance market:

– Florida bill could see $3Bn of risk move to private reinsurance market.

– New Florida reinsurance demand could generate $300m of premium.

– Florida Clearinghouse to increase demand for reinsurance: Fitch.

– Florida Cat Fund looks to cat bonds & collateralized reinsurance.