A.M. Best: Hurricane Irma to Test Florida Market Newbies

October 2, 2017

Hurricane Irma represents a sizeable catastrophe event that will test the infrastructure and potentially strain the financial wherewithal of some local and regional carriers in Florida, particularly those that are geographically concentrated, said ratings agency A.M. Best.

According to the September briefing from Best titled, “Hurricane Irma Tests Newer Participants in Florida Market,” the number of more concentrated local/regional writers in Florida’s insurance market has increased in the last decade as national writers pulled back from the state.

Citizens Property Casualty Insurance Corporation seeked to alleviate some of its financial pressure through a successful depopulation program that gave private insurers incentives to assume Citizens policies. This, along with other factors that included benign weather in Florida and favorable reinsurance pricing, prompted many new insurance companies to form.

Newer insurance companies now write nearly a fifth of the Florida property market lines, and Hurricane Irma marks the first severe event to test these business models.

A.M. Best-rated entities had already started strengthening their claims processes in response to the state’s Assignment of Benefit issues. Newer companies may face additional pressure from a lack of experience as well as limitations due to scale.

The report warns that Hurricane Irma has the potential to amplify the AOB issue, which had already led to deteriorating performance in the Florida market from an increase in the frequency and severity of litigated water claims.

A.M. Best does not expect a significant number of rating actions on its rated insurers to result solely from Hurricane Irma, but reinsurance programs that respond differently from what is anticipated could increase ratings pressure.

A.M. Best said that ultimately, although the aftermath of Hurricane Irma may be bleak for some regional and local carriers, particularly overexposed companies with earnings and potential capital concerns, it believes opportunities will emerge for others.