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Demotech highlights Florida insurers realistic loss reserves & reinsurance


Demotech affirmed its financial ratings for 51 Florida based primary insurance companies, highlighting their “realistic” loss reserves and saying their reinsurance is of “sufficient quantity and quality” to ensure they receive payouts after suffering losses.

florida-map-flagDemotech regularly reviews the health and performance of the Floridian primary insurance sector, placing an emphasis on how these companies are dealing with their losses, loss adjustment expenses and also how they are coping with assignment of benefit (AOB) related claims.

On top of the insurers’ ability to manage their losses and claims, the other really important lever is their use of reinsurance and insurance-linked securities (ILS).

These Florida focused primary property insurers utilise large reinsurance programs, using reinsurance and ILS capital as a tool to help them to absorb losses from major hurricanes and continue to pay claims to their clients.

As such reinsurance has become a vital capital lever and tool for the Floridians, hence Demotech places some importance on the health of their reinsurance program structures and counterparty panels.

Demotech said that it has reviewed insurer’s year-end 2018 financial information and had interaction with management teams, such that after analysis of the assumptions underlying the financial data it can announce the affirmation of 51 Financial Stability Ratings® (FSRs) for insurer’s it rates.

Each of the Florida focused insurance carriers demonstrated to Demotech that their financial statements contain: realistic estimates for gross and net loss and loss adjustment expense reserves for Hurricanes Irma (2017) and Michael (2018); realistic estimates of the impact of assignment of benefits on their reserves; and realistic estimates of gross and net loss and loss adjustment expense reserves for non-catastrophe claims outstanding.

Given the loss creep seen, it may be encouraging for reinsurance carriers and ILS funds to know that Floridian primaries appear to be realistically reserved for events like hurricane Irma currently, according to Demotech.

The loss creep from Florida primary insurers has been one of the major talking points of the last 18 months, as hurricane Irma estimates kept escalating, causing increasing losses for some ILS funds and collateralized reinsurance players.

In addition, the other really important aspect of Florida primary insurer health is their reinsurance arrangements, both traditional and from alternative reinsurance capital.

Demotech said that the insurers demonstrated that they have reinsurance that is of sufficient quality and quantity to expect reimbursement for their outstanding losses and loss adjustment expenses that they have ceded to reinsurers, including insurance-linked securities (ILS) backed capacity.

With some Florida reinsurers operating heavily reinsured business models, while others utilise a significant amount of fully collateralized reinsurance capacity, the quality and health of their counterparty relationships are key to their ability to survive losses and trade forwards effectively.

Commenting on the affirmation of 51 Floridian insurers, Joseph Petrelli, President of Demotech, said,  “Demotech has been actively reviewing and monitoring carriers and critical aspects of Florida’s legislative, judicial, and carrier operating environment at least quarterly basis since 1996. Although many attempt to shape the discussions of the current operating environment based upon the challenges associated with addressing the abuses often applicable to assignment of benefits, our long-tenured, credentialed analysts have the requisite knowledge associated with more than twenty years of the ebb and flow of pricing, loss and loss adjustment expense, coverage interpretations, as well as the evolution and enhancements of catastrophe modeling along with the introduction of alternative capital and the impact on catastrophe reinsurance purchases.

“These affirmations reflect the on-going dialogue, communication, and analysis that we have had with management.  Our review process does not start and stop with quarterly statements.  Our first quarter 2019 operating results, review of 2019 reinsurance programs, and corporate responses to Florida’s operating environment is a continuous and on-going process.”

The 51 carriers that Demotech has affirmed are:

  • American Coastal Insurance Company
  • American Integrity Insurance Company of Florida, Inc.
  • American Platinum Property and Casualty Insurance Company
  • American Strategic Insurance Corp
  • American Traditions Insurance Company
  • Anchor Property and Casualty Insurance Company
  • ASI Assurance Corp
  • ASI Home Insurance Corp
  • ASI Preferred Insurance Corp
  • Auto Club Insurance Company of Florida
  • Avatar Property & Casualty Insurance Company
  • Bankers Insurance Company
  • Capitol Preferred Insurance Company
  • Castle Key Indemnity Company
  • Castle Key Insurance Company
  • Edison Insurance Company
  • FedNat Insurance Company
  • First Community Insurance Company
  • First Protective Insurance Company
  • Florida Family Home Insurance Company
  • Florida Family Insurance Company
  • Florida Peninsula Insurance Company
  • Florida Specialty Insurance Company (100% reinsured until May 31st 2019)
  • Frontline Insurance Unlimited Company
  • Gulfstream Property and Casualty Insurance Company
  • Heritage Property & Casualty Insurance Company
  • Homeowners Choice Property & Casualty Insurance Company
  • Monarch National Insurance Company
  • Olympus Insurance Company
  • Omega Insurance Company
  • People’s Trust Insurance Company
  • Prepared Insurance Company
  • Progressive Property Insurance Company
  • Safe Harbor Insurance Company
  • Safepoint Insurance Company
  • Security First Insurance Company
  • Service Insurance Company
  • Southern Fidelity Insurance Company
  • Southern Fidelity Property & Casualty Insurance Company  (merging into Capitol Preferred Insurance Company in 2019)
  • Southern Oak Insurance Company
  • St. Johns Insurance Company, Inc.
  • Tower Hill Preferred Insurance Company
  • Tower Hill Prime Insurance Company
  • Tower Hill Select Insurance Company
  • Tower Hill Signature Insurance Company
  • TypTap Insurance Company
  • United Property & Casualty Insurance Company
  • Universal Insurance Company of North America
  • Universal Property & Casualty Insurance Company
  • US Coastal Property & Casualty Insurance Company
  • Weston Insurance Company

Commenting on the other carriers yet to be affirmed, Petrelli said, “Although carriers may not yet be affirmed, Demotech has had similar communication with those carriers.  Given our carrier specific requirements associated with sustaining an FSR, in some situations it seemed prudent to await reported year-end 2018 financial statements that reflected final decisions of management prior to evaluating the efficacy of an affirmation.  A final recap based upon a review of the year-end 2018 financial information filed by carriers will be forthcoming as soon as practical.  As we have also had similar communications with the 350 plus carriers that we review and rate outside of Florida, a firm release date for Florida property writers is not yet available.”

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