Florida reforms open runway for tens of billions in fresh capital: Fermat’s Seo

The enactment of legislative reforms targeted at the insurance market in Florida has opened the runway for tens of billions in fresh capital to flow into the state from investors, John Seo, Co-Founder & Managing Director at Fermat Capital Management said at an event last week.

Speaking during a panel discussion at an Insurance Summit convened by the Florida Chamber of Commerce, catastrophe bond specialist investment manager John Seo said that investors have been constructive about the property insurance market reforms that Florida’s lawmakers have enacted.

Discussing efforts to attract more reinsurance capital to the state and that Florida needs more, to support its insurance carriers, Seo suggested that the reforms have been a positive step forward that can help in attracting more interest in Florida from insurance-linked securities (ILS) investors.

During the panel, Seo explained that the interaction with investors, to explain the improving situation in Florida’s market, is an ongoing but vital one, as sustaining the flow of investor capital to support Florida’s insurance market is critical, given the state’s exposure to hurricanes and climate events.

Seo said that already there were signs of improving conditions, especially with respect to litigation rates in Florida after hurricane Ian.

Calling the change in direction “phenomenal”, Seo said at the event that he has been “spreading the message worldwide to a global investor base that really is breathing a great sigh of relief,” the Sun Sentinel newspaper reported on the event.

On the prospects of attracting more reinsurance capital from investors, Seo said, “You’ve now opened up the runway for tens of billions of dollars of fresh capital to flow into Florida over the next three to five years.”

Seo also highlighted the key role that Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund (FHCF) have played in preventing a total collapse of Florida’s insurance market before the reforms were enacted.

He said that without those backstops Florida’s insurance market could have been in “free fall” but that now, thanks to the reforms, everything is “coming together in a really, really nice way.”

Justin O’Keefe, chief underwriting officer at RenaissanceRe, which is a significant catastrophe reinsurance market for Florida, concurred that the market has improved and it gives his firm more confidence.

He said that the reforms, from a reinsurance perspective, provide “more confidence and credibility” to reinsurers like RenaissanceRe.

O’Keefe also noted that litigation has been an added cost that reinsurers have had to bear in the past, saying RenRe likely paid around $500 million for claims from 2017’s hurricane Irma than it really should have, because of the litigation rates that were being seen in Florida at the time.

Bryon Ehrhart, global head of growth and strategic development at broker Aon also felt the market has improved and said, “I think we’ve got it back to an insurance market rather than a fraud market, that’s what we hope to see continuing.”

Ehrhart also explained that Florida’s insurers remain under-capitalised and that reinsurance capital will remain a key source for the state’s carriers going forwards, saying that his firm, Aon, has also been speaking with investors around the world about the situation in Florida and how the insurance reforms may change the landscape for the better.

It’s encouraging to see such positive commentary about the reforms and the effects they may have in Florida, while the state’s need for reinsurance capital remains significant the growing confidence that the reforms will deliver at least some of the desired reduction in litigation and claims inflation should serve to attract more capital and ultimately help the state’s insurance market become more functional again.

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