AAA Is Not Exiting Florida But Will Non-Renew ‘Small Percentage’ of Policies

The Auto Club Insurance Company (AAA) of Florida has announced that it will not renew a “very small percentage” of auto and home insurance package policies in Florida.

But, the insurer stressed, it is not leaving the state — it’s just trying to manage its risk. In fact, it plans on growing its business in the state.

“AAA’s Florida-based insurance provider is committed to the state and is not leaving. In fact, we seek to continue growing our insurance business in Florida. While other providers have either left the state or stopped writing new business, we continue writing new home and auto insurance policies,” the insurer said in a statement to Insurance Journal today.

“Evaluating risk and exposure management is common practice in the insurance industry, and we recently made the difficult decision to not renew a very small percentage of higher exposure homeowner’s policies in Florida,” the insurer added.

AAA’s Florida-based insurance provider offers a package policy which combines home, auto and optional umbrella into one policy. The insurer said the non-renewals apply to package policyholders. Those affected would be able to reapply for auto coverage, provided by its sister carrier. The company urged policyholders to work with their AAA agents to find alternate coverage.

AAA did not say how many policies might be non-renewed. The Auto Club Insurance Company of Florida ranked 27th among insurers in 2022 with about 79,000 personal residential policies in the state, totaling about $190 million in premium, according to state data.

“We are actively writing new insurance policies and will continue to grow our policy count year over year. We will work with any policyholder that receives one of our small number of non-renewals that is issued in order to manage our risk,” the insurer also said in a July 15 post on Twitter.

AAA told CBS MoneyWatch that last year’s catastrophic hurricane season “contributed to an unprecedented rise in reinsurance rates, making it more costly for insurance companies to operate.” The insurer confirmed to Insurance Journal that reinsurance costs were among the factors it weighed.

AM Best

In March, AM Best downgraded the Financial Strength Rating (FSR) to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “a-” (Excellent) from “a” (Excellent) of Auto Club Insurance Company of Florida and Auto Club South Insurance Company. Together these companies form Auto Club Florida Group and are domiciled in Tampa. The outlook of these credit ratings was revised to negative from stable.

AM Best said the insurer’s balance sheet was still strong but weakened following recent storm loss activity. The revised outlooks to negative from stable reflected the deterioration in the group’s operating performance following catastrophe losses given its limited business profile and, to a lesser extent, the emergence of adverse reserve development in recent calendar years.

AAA is not the only insurer taking action to manage its Florida exposure. Last month, Farmers Insurance announced that it would halt new homeowners policies, and last week said it plans to cut back even more on its presence in the hurricane-prone state.

Market Improvement

The moves come amid new reports of good news that Florida’s beleaguered insurance market may have turned a corner in 2023, with net income in the black for the first time since 2016 and much smaller underwriting losses than in recent years. That’s according to state regulators’ latest market stability report from the Office of Insurance Regulation.

Net income for Florida insurers, not including state-backed Citizens, rose to about $60 million for Q1 2023, a far cry from the industry’s net losses reported for all of 2022. That may be due in part to investment gains, but the combined ratio also dropped to less than zero for the first time since 2017. Underwriting losses shrank to about $50 million, compared to almost $340 million in losses for all of 2022.

“These numbers reflect the high degree of uncertainty which exists in the property insurance market, which in turn impacts reinsurance capacity and reinsurance rates for insurers,” the July 1 report reads.

However, as cited by AAA in its announcement, reinsurance costs in the state are rising. Based on a data call with carriers, the cost of reinsurance purchased for 2022 jumped by 52% over 2021 rates. Figures for 2023 won’t be finalized until August, the OIR said. But other industry reports have indicated that reinsurance prices climbed by another 50% at the June and July renewal dates this summer.

The data also show that claims litigation, which dropped significantly late last year, has spiked again. And 2022 loss reserve development, showing the actual cost of claims compared to initial estimates, was $772 million higher than expected at the two-year look-back mark.

“In the simplest of terms, the greater the uncertainty that exists on future claims, the more reinsurers will tend to hedge their willingness to offer capacity, and the capacity that is available will cost more as a result,” the report noted, referring to loss reserve development.