A.M. Best: Will 2015 Be the Year That Tests Florida Property Insurers?

The property insurance market in Florida has significantly shifted in market share as Citizens Property Insurance Corp. (Citizens)–the state-run property insurance company–continues to depopulate and move policyholders to the private market, which has increasingly seen the emergence of newly formed, in-state writers. While these new companies have experienced significant growth driven by the dynamics of Citizens’ shifting market position, there is significant risk as proper risk management, risk analytics and overall infrastructure to manage the growth are in some cases untested, according to a new special report from A.M. Best.

While Florida has not had a significant hurricane in the past few years, it has been impacted by other unique issues, including sink-hole claims. The Best’s Special Report, titled, “Florida Property Insurers Remain Untested: Will 2015 Be the Year?,” states that these storms along with sink-hole losses, escalating reinsurance costs and general market conditions have caused many larger, national carriers to reduce Florida property exposures. Beginning in 2007 and continuing to the present time, many of the long-term top 10 insurance market leaders have been replaced by several less-experienced companies.

A.M. Best’s analytical process for Florida-concentrated companies encompasses the same qualitative and quantitative evaluations as all companies do.

In the case of those companies with exposure to wind events, a key component in the analysis is its exposure to hurricane loss and the recoveries of reinsured losses. Not surprisingly, many companies have a very high gross probable maximum loss. In addition, a stress test is performed on the company’s capitalization that measures the capital position post an event and its ability to absorb a subsequent event on its capitalization. As was evident in 2004, when several hurricanes caused significant insured property losses, the possibility of multiple severe events and correspondingly multiple reinsurance retentions and reinstatements is a real possibility.

This group and the other carriers will eventually be tested when the major hurricane(s) make landfall in Florida.