Florida P&C rate filings show reinsurance firming needs to continue

The latest property insurance rate increase filings submitted by carriers in Florida are calling for really significant uplifts in pricing, suggesting the primary market still believes more rate is required to support sustainable profits, which implies reinsurance firming also needs to continue in the state.

Florida’s property insurers have been particularly challenged in recent years, not least by the assignment of benefits (AOB) crisis, litigation, loss amplification and claims inflation.

Add to this now much higher reinsurance costs than a few years ago and it’s clear the market had to secure more rate.

The assignment of benefits (AOB) issue persists, with rising AOB claims reported recently in the state of Florida.

Florida Citizens CEO called the property insurance market in the state unsustainable and said reinsurance costs will likely continue rising there, while a well-known ILS fund manager John Seo of Fermat said that Florida has increasingly been seen as a “bad bet” by ILS investors.

But in recent months, a number of primary carriers have shifted their focuses back to the Florida property insurance market, saying conditions are much better there now and in fact better than in some other catastrophe, particularly wind, exposed states such as the Gulf.

First, FedNat said that rates in Florida are already high enough to make the state attractive to write more business in again, while United Insurance Holdings also said it is targeting growth in Florida again.

But these latest filings made to the Florida Office of Insurance Regulation (FLOIR) show that property insurance rate increases in Florida are likely to continue and as ever reinsurance would be expected to follow-suit.

Three Florida domestic property insurers have made new filings for significant rate increases, with virtual hearings scheduled for today.

The rate filings and requests to increase rates reflect the fact that the market for homeowners and commercial property insurance in Florida remains under significant pressure, while carriers believe additional rate is required to make Florida into an economically viable underwriting market.

The first to request rate increases is Southern Fidelity Insurance Company, which has asked for the largest price hikes.

Southern Fidelity Insurance Company has requested a statewide average rate change for its Homeowners Multi-Peril business of +84.5% and an average rate change for its Property / Personal (Dwelling Fire) business of +111.1%.

Those are particularly significant rate increases, suggesting Southern Fidelity feels the market lacks profits right now and suggesting underwriting at its current rates could be seen as unsustainable.

It’s unlikely the regulator would allow such a huge rate hike, but it does suggest that any rate hikes approved will still be significant.

The second carrier requesting higher rates is from Cypress Property & Casualty Insurance Company, which requested statewide average rate changes for its business in the “Florida Evergreen” Homeowners Multi-Peril Program segment of +26.3%.

The third carrier is Centauri Specialty Insurance Company, which has requested a statewide average rate change of +28.3% for its Property / Personal (Dwelling Fire) business.

These two rate increase requests are more reasonable, although still significant, reflecting the still-challenging property insurance market environment in Florida.

As primary insurance rates continue to escalate in the state of Florida, particularly for catastrophe exposed property business, it’s safe to assume upwards pressure on reinsurance rates in the state will also persist at the June 2022 renewal season.

As primary insurers gain increasing rate, reinsurers will want to ensure they are also reflecting the marketplace in their own pricing as well and won’t want to continue lagging behind.

As we explained recently in an article, the reinsurance market has been lagging primary insurance pricing and also retrocession rate increases, suggesting that reinsurance rates need to catch-up further at the mid-year 2022 renewals.

With these filings detailing average rate increases, it’s also safe to assume that for loss impacted or particularly catastrophe exposed properties, the increases could be much larger and pricing escalate far more rapidly.

With depopulation of Florida Citizens expected to be a trend through 2022 and into 2023, as the residual market looks to reduce its exposure after a period of strong growth, primary carriers likely need to get their rates up to such a level that they feel more confident in their profitability over the longer-term, which should help to ensure policies don’t just cycle into the private market, only to return to Citizens after the next set of losses.