In a report on the challenged Florida property insurance marketplace and legislative efforts to reform the sector, rating agency AM Best has warned that reinsurance costs could reach breaking point at June 2023’s renewals, surpassing the level of affordability.
That is, unless significant legislative reforms are put into place at the Special Session which is being held in Florida’s Senate next week.
As we explained yesterday, the Special Session will have a focus on the two key issues of stemming the tide of litigation in Florida’s property insurance claims, and improving the availability of reinsurance capital for Florida’s primary insurers.
“Public policy initiatives need to consider how to make Florida attractive to national insurers and reinsurers, to incentivize them to expand their appetite for Florida risks,” explained Sridhar Manyem, director, industry research and analytics, AM Best.
“Absent that, a lack of competition may continue to fuel affordability issues for primary insurers with respect to reinsurance and consumers in need of basic homeowners’ coverage.”
AM Best said that Florida’s specialist property insurers have become reliant on reinsurance, but now securing it may not be so easy for them.
Reinsurance are lowering their appetites for property catastrophe exposures in the state, and this could continue to pull capacity away from the Florida property market.
It could also drive further significant increases in reinsurance pricing for those operating in Florida, potentially making reinsurance cover reach the limits of affordability.
“The outcome of the special legislative session could affect the capital allocation strategies of reinsurers that have to decide where to invest their dollars in the coming year,” David Blades, associate director, industry research and analytics said. “Although claims stemming from Hurricane Ian at this point are lower than that of 2017’s Hurricane Irma, the rising reinsurance costs could reach a breaking point for many primary insurers in June 2023, when Florida property catastrophe reinsurance programs are scheduled for renewal.”
Summing up, AM Best said that absent significant change, “to reduce the costs in the system and to better manage the impact of catastrophes”, Florida’s insurance carriers may find it difficult to survive.
Making significant reform critical as an output of next week’s Special Session, without which Florida’s insurance industry and policy holders will face another difficult period through 2023’s storm season.
The rating agency said, “AM Best views long-term solutions as the only way to attract large national players, as well as new capital, back to the market in earnest; however, carriers are unlikely to take such a step until necessary reforms have taken hold, and once prevailing rates are sufficient to cover the risks they must bear.”