For under-pressure property insurers in the challenged Florida marketplace, achieving a full placement of their Florida-focused catastrophe reinsurance programs at the upcoming June 1 renewal season is set to be challenging, analysts at AM Best have said.
Our readers will be all too aware of the kind of pressures Florida’s property and casualty insurance industry is facing, read some of our previous coverage here.
But, suffice to say, the lack of profits, heavy losses and attritional LAE, continued pressure from litigation and rising costs of reinsurance, have all left the states insurance industry in a particularly challenging place with the key reinsurance renewal now under a month away.
But exacerbating it is the hardening of reinsurance markets and reinsurers increasing risk aversion to peak zone lower layers of reinsurance towers. This has driven some insurers to seek other ways to manage exposure, but time is fast running out.
With reinsurers generally looking to become less exposed to Florida themselves as well, while catastrophe bond spreads have widened considerably too, options are running out for Florida’s insurers, with some now facing shortfalls in their reinsurance arrangements, we’re told.
In a new report, AM Best goes through Florida’s insurance market challenges in some detail, but most interesting are the comments on reinsurance, which align with what our sources have been saying.
That there are no guarantees Florida focused property insurers can buy sufficient reinsurance at the renewal and getting everything they want, in terms of coverage, may be very difficult this year.
“Florida property insurers may find full placement of their catastrophe reinsurance programs ahead of the upcoming renewal season a challenge,” Chris Draghi, associate director, AM Best explained.
In particular, it is the concentrated and less diversified writers of coastal property in Florida, or of lower-quality housing stock in the state, that face the biggest issues with buying their reinsurance this year.
Securing all the reinsurance required at higher layers is not so hard, but move down the tower and this is where some challenges are emerging and we’re told there are quite a few carriers struggling to buy their riskier layers of coverage.
Reinsurance costs are escalating and while Florida’s insurers are securing rate increases themselves, these aren’t always sufficient.
As reinsurers have faced loss related pressures in Florida over the last few years, AM Best believes that “available capacity may be limited versus prior years,” for those seeking reinsurance in the state, with the geographically concentrated writers the most affected.
AM Best explains how it is assessing all of this in the context of the ratings it applies to Floridian carriers:
Elevated reinsurance costs, coupled with higher indemnity and LAE losses, proved to be an unfavourable combination that limited insurers’ ability to purchase the same level of reinsurance protection as in years past.
As a result, balance sheets have weakened and surplus has been challenged. This dynamic has forced rated-entities to rethink their risk appetite in the state, leading to refined risk accumulations and targeted non-renewals, to minimize their reinsurance needs.
While these exposure initiatives are intended to improve overall risk management, the efficacy and appropriateness of risk mitigation strategies are yet to be fully determined.
As a result of observed challenges, the ratings and outlooks, particularly for those entities not part of larger groups, remain under pressure; nonetheless the credit ratings are currently considered “Good” or better.
The reinsurance renewals may prove one challenge too much for some carriers, as an inability to buy enough protection can leave dwindling surplus exposed and result in downgrades.
It will be interesting to see whether any more carrier failures occur as a result of reinsurance renewal shortfalls.
Read coverage of Florida’s property insurance crisis below: