Should a hurricane make landfall in Florida this storm season, many of the homeowner insurance players now doing business there are untested as to how they’ll perform when catastrophe hits.
Fitch Ratings noted in a recent update for the state that the market has shifted since 20054 from large, national insurers to new, relatively small specialist companies focused on Florida homeowner business. That’s when the last hurricane made landfall in Florida – Hurricane Wilma.
These smaller specialists now hold 60 percent of the market in Florida, Fitch said. At the same time, Citizens Property Insurance Corp. – the state insurer of last resort, has just 6 percent of the Florida market at the end of 2015, down from 11 percent in 2011.
Citizens’ market reduction comes as it has achieved a better position with capital and its risk profile, which helps make the Florida homeowners’ market more able to meet obligations if future loss events hit. Fitch argues that this is cause for concern, however, due to the transfer of risk from Citizens to Florida specialists. This keeps the market more dependent on smaller underwriters that, compared to Citizens, have more limited levels of capital and access to new capital should they need it.
Fitch said that many of the Florida specialists have reported favorable profitability over the years because of the lack of catastrophe losses. But Fitch said they won’t easily hit ‘A’ issuer financial strength ratings, because of their smaller size and reach. Other restricting factors for these companies: limited product and geographic profiles, heavy reliance on third-party reinsurance and concerns over capital adequacy with catastrophe exposure.
Still, reinsurers are helping to fill the gap, as they provide a big role in protecting Florida insurers from catastrophe losses, Fitch said.
The Florida Hurricane Catastrophe Fund assumes the biggest level of insurance premium, but major insurance players follow. They are: Lloyd’s of London, Allianz SE, Tokio Marine Holdings, Everest Re Group and XL Group (XL Catlin). Fitch noted that Florida property risk also gets passed to the alternative capital market through avenues such as catastrophe bonds, sidecars, industry loss warranties, hedge fund-supported reinsurers and asset managers who invest in insurance linked securities.
Source: Fitch Ratings