Rating agency Demotech is still in the process of assessing the Financial Stability Ratings (FSR’s) of Florida focused primary insurance carriers, a task it has normally finished by this stage of the year.
The assessments have clearly been delayed due to the very challenging Florida reinsurance market and renewal environment, as well as the financially distressed state of some of the property insurers operating in the state.
As Florida focused insurers have struggled to fill out all of the layers of their reinsurance towers, with prices having risen significantly, especially in core lower-layers, this has resulted in Demotech seemingly having to prolong its rating assessment process at this stage of the year.
In an announcement yesterday, Demotech said that, “Today, its team continues to review, analyze, and evaluate Q1 2022 operating results, catastrophe reinsurance programs, disaster recovery plans, catastrophe response plans, the legislation emerging from the special session at the end of May 2022, and other considerations.”
Adding, “These factors, and others, influence Demotech’s quarterly assessment of Financial Stability Ratings® (FSRs) assigned to carriers writing residential property insurance in Florida.”
Joseph L. Petrelli, President and Co-founder of Demotech also said, “When analyzing insurer operating results, whether historical, current, or anticipated, the legislative, regulatory, and judicial environment may be considered in Demotech’s review where legislation, regulations, or judicial decisions could materially impact an insurer’s financial position or its ability to operate consistently given the market conditions of a particular jurisdiction.
“Regulatory practices or regulatory actions may affect the operating environment of insurers positively or negatively. Such actions may relate to product regulation, financial regulation, or market regulation.
“In some instances, legislation or judicial decisions may also alter the operating environment or risk exposures of certain insurers by altering the policyholder claims and litigation environment or the insurance regulatory environment.”
It seems the introduction of last minute legislation through the special session of the Florida Senate has also, unsurprisingly, created a drag on Demotech’s process.
Now, the rating agency has additional factors to consider, around the so-called RAP Fund that provides some carriers with additional reinsurance from the state, as well as needing to consider how reforms to reduce litigation may help, or not.
The challenging reinsurance market added to the challenged state of Florida’s property insurance market, makes for an interesting assessment this year and there are no guarantees all carriers sustain their needed ratings.
For Demotech it is a difficult year to perform its important role in the market as well, as it must consider whether the legislative reforms are really going to have a meaningful effect on performance, which with legal challenges to some of the reforms is currently almost unknowable.
Our gut feel is that all, or nearly all, carriers will pass their assessments, as reinsurance does seem to have been secured by the majority (we hear just a handful are still to complete their renewals).
But, it will be interesting to see whether all those that receive an FSR rating affirmation could actually survive any measure of storm or hurricane hitting Florida, or whether their thin capitalisation and dwindling surplus means we’d see a raft of failures.