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No capital structure immune as Florida market remains in free fall: ALIRT


Recent changes in the strategic direction of Florida property insurance players, as well as continuing failures and challenges for other carriers, show that “no capital structure remains immune” in this marketplace, which according to ALIRT Insurance Research continues to be in a sort of free fall.

florida-insurance-marketWhile the reinsurance renewals are now over and a pronouncement on many Florida P&C insurer ratings is expected soon from Demotech, there have still been additional stories of carriers facing difficulties, principal analyst David Paul from ALIRT writes in his latest piece on the market there.

“If any market observers still harbored doubts about the dire condition of the Florida homeowners’ market, events over the last several weeks have likely laid them to rest,” Paul begins.

Going on to characterise the issues to consider that have arisen since the reinsurance renewal, such as:

  • Florida Citizens CEO Barry Gilway telling a Board of Governor’s meeting that 75% of the Florida homeowners’ market was probably shutdown, “There are very, very few companies that are open in the marketplace.” Gilway went on to explain the policy growth Citizens expects, that could take it back to near-record levels of exposure.
  • Capacity Insurance Company (CIC), a small Florida-only, commercial multiperil specialist being downgraded by A.M. Best and placed into run-off, which ALIRT said indicates “that Florida property insurance woes extend beyond the homeowners’ market.”
  • United Insurance Holdings Corp. (UPC Insurance) announcing a strategic review of its options, including raising more capital.
  • Tower Hill’s President taking a new role at Producer’s National, at a time when Tower Hill has been facing challenges.
  • Plus the strategic evolution of FedNat, on which ALIRT says “its future viability remains in question.”

“All of these apparent odds and ends do ultimately contribute to a coherent narrative, which in this case is that the Florida homeowners insurance market remains in a sort of free fall, with a number of once substantial players sounding a more urgent retreat,” ALIRT’s Paul writes.

While he also says that thee United (UPC) and FedNat news “only serve to remind us that no capital structure remains immune in this difficult market.”

Paul highlights that while private equity money can often be a saviour of insurance markets, especially where they forsee a chance to”make hay”, in the case of Florida, “private equity has been burned in this Florida market before and at points of time when the conflagration was not nearly as bad as today.”

ALIRT also discusses the fact the increasingly popular reciprocal exchange structure could be considered the “ownership structure of last resort in Florida”, with recent trends pointing towards that being seen as a structure that can whether market conditions better, while benefiting from alignment with policyholder members.

Finally, Paul from ALIRT cautions that there are now signs that some insurance groups in the “badly battered Florida homeowners cohort” could start to shift their focus to underwriting commercial multiperil business.

However, he warns, “This strategic volte face may not be the saving grace for others with less experience. The recent demise of Capacity Insurance Company serves as an object lesson in this regard.”

Read all of our news and analysis on the Florida insurance and reinsurance market.

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