ILS backed reinsurance in Florida as secure as traditional: Demotech

In assessing the stability and security of the Florida insurance market as well as those companies providing reinsurance capacity to it, Demotech, Inc. said all insurers are seen as stable, with a few undertaking business model changes, while the reinsurance capital providers are all viewed as secure, including numerous backed by ILS fund capital.

Demotech assesses the strength and health of the Florida insurance marketplace on a regular basis, rating the insurers financial stability and applying criteria they have to meet.

This year Demotech raised a key criteria, increasing the requirement that reinsurance purchased should cover at least a 100 year first-event loss for Floridian insurers up to a new level of at least a 130 year first-event loss.

Despite this, Demotech’s initial analysis based on 2019 data on the Floridian insurance community is that the industry remains A rated across the board, with a few taking remedial actions required to improve their business models.

Demotech provided its Financial Stability Ratings (FSRs) on Florida’s primary insurers after reviewing Q1 2019 financials and the 2019 – 2020 reinsurance program including both vertical and horizontal limits.

Six of the insurers are rated “A’ (A Prime), Unsurpassed”, while the rest are rated “A Exceptional” by Demotech.

Joseph L. Petrelli, President of Demotech, commented on the strength of Florida’s insurers to us, saying, “The Florida-focused carriers reviewed and rated by Demotech have secured record levels of catastrophe reinsurance for the 2019 – 2020 storm season. This is the case whether one measures vertically on first, second or third events, or measured horizontally for the number of events in the season.

“Concurrently, with our 2019 – 2020 guidance for a first event raised to 1:130 PML versus a 1:100 PML, most of the carriers that we review and rate exceeded the 1:130 guideline and secured a higher limit, despite the cost of doing so.

“With loss and loss adjustment expense reserve strengthening required periodically throughout the past several years, Demotech rated carriers focused on Florida are exhibit exceptional financial stability.”

Demotech also provides a preliminary perspective for 2019 on the reinsurance carriers providing protection for the 2019 Florida wind season, assessing every one’s financial stability as “Secure -1.”

That includes numerous insurance-linked securities (ILS) fund backed reinsurers, as well as collateralized reinsurance players, which have all been pegged as at the same security level as the traditional reinsurance players in the list, which demonstrates the more level playing field that ILS plays on in the Florida market these days.

The list features almost every major ILS fund and collateralized underwriter, who are all providing the necessary reinsurance capital to support the financial stability of Florida’s primary insurers.

In particular, the assessment that all reinsurers including ILS players are secure for the 2019 wind season is testament to the industry’s ability to bounce back from losses of recent years, as well as to maintain sufficient capital to support the Florida insurance market after two challenging catastrophe years.