Loss costs on Florida property insurance business continue to be impacted by social inflation, according to the CEO of Universal Insurance Holdings, but this hasn’t put the carrier off writing more business in the state, with its Florida book expanding in Q2.
Universal, the Florida headquartered and expansive primary insurance carrier, is a specialist in the state, so well-positioned to comment on loss cost trends and issues such as the inflationary factors that have emerged largely due to lawsuits and the so-called assignment of benefits issue.
At the same time, the company continues to deal with loss creep from hurricane Irma and other prior year catastrophe loss events, but noted that it has ample reinsurance capacity still available to deal with that.
Stephen J. Donaghy, Chief Executive Officer of Universal, explained, “We delivered solid second quarter results, highlighted by an 18.7% annualized return on average equity, despite continued social inflation within the state of Florida impacting loss costs.
“We continue to address these trends, in part, with primary rate increase filings, which was a driver of our direct written premium growth during the quarter. We expect primary rate increases to be a tailwind over the medium to long term as they earn-in, but are relentlessly focused on performing through the near term pressure on carriers in the Florida property insurance marketplace, and lament about the unfortunate derivative consequence of price increases on consumers.”
The company expanded its direct premiums written by an impressive 17% during the second-quarter of 2021, with 19.6% growth in Florida.
As Donaghy said, part of this growth will be down to premium rate increases being charged.
Universal revealed that its Universal Property & Casualty Insurance Corporation (UPCIC) division filed a Florida primary average rate increase of 14.9% during the second-quarter of 2021.
Which will be helping, lifting premiums written volume without expanding risk as much, but still isn’t covering the loss cost trends, Donaghy appears to believe.
At the same time, it seems premium growth in Florida has outpaced these rate increases which will take time to earn in, suggesting Universal has expanded its Florida book a little over the second-quarter.
Indicating this, total insured values in Florida have risen to more than $200 billion for Universal, as of June 30th 2021, up from almost $178 billion a year earlier.
Universal booked $7.7 million of adverse prior year’s reserve development during Q2 2021, which the company said was “driven primarily by continued adjusting and settlement of non-CAT claims on prior accident years.”
But underlying this, Universal had also ceded more prior year loss development to its reinsurance partners in Q2, with almost $109.2 million of prior year loss development ceded during the quarter, much higher than the prior year’s roughly $11 million.
The firms reinsurance continues to provide a buffer against the loss development trends that have been experienced in the Florida market and has significantly helped Universal over the last few years.
The importance of these reinsurance partnerships cannot be understated when a market is challenges, as Florida has been.
Despite this though, Universal’s CEO explained during the firms earnings call that reinsurers are not penalising the carrier too much, it seems.
“Reinsurance costs increased as expected and discussed in our reinsurance filing on May 28th, but were more moderate in comparison to prior years.
“We continue to address these impacts to margins through primary rate increases and our exposure management program.
“We were pleased to not only see the vast majority of our core long-standing reinsurance partners offer increased capacity in 2021, but also that we were able to attract new reinsurer capacity at the 6-1 renewal,” Donaghy explained.
Further underscoring the importance of its reinsurance, Donaghy also revealed that the firm has roughly $1.2 billion of reinsurance capacity left on 2017’s hurricane Irma, which has been a significant driver of loss creep over quarters since for Universal.
That buffer remaining means that the company will hope to close out Irma in time, without too much exposure to its own balance-sheet and shareholders, as reinsurance partners continue to pick up the majority of its adverse development on that event.
During Q2 2021, the adverse development was not just from Irma though, as hurricanes Michael and Sally also drove impacts for Universal during the period.