Florida Property Insurance Market Sees Improvement Amid High Reinsurance Dependency

Higher homeowners' premiums, reduced legal costs from recent legislative efforts, and the ongoing de-population of the state-backed insurer of last resort characterize Florida's property insurance market as it heads into another hurricane season, according to a new A.M. Best report.

The report indicates that Florida-focused personal property insurers have faced significant volatility in operating results and surplus levels due to more frequent and severe weather-related losses and inflationary impacts. These insurers also exhibit a high dependency on reinsurance, exceeding that of the broader property segment. However, results improved in 2023.

The analysis centers on Florida specialist insurers identified by A.M. Best, focusing predominantly on personal property in Florida and excluding companies tied to larger national insurers and Citizens Property Insurance Corporation.

Florida insurers have struggled with a hard reinsurance market recently. Reinsurers have faced considerable weather-related losses and rising claims severity due to social and economic inflation. "In response, reinsurance carriers increased rates, reduced capacity, and pushed for higher retentions, and in some cases, sought lower limits to protect their financial positions," said Josie Novak, financial analyst, A.M. Best.

To address rising reinsurance costs, primary insurers have significantly raised rates for policyholders, resulting in a substantial increase in direct premiums written. The report highlights the high reinsurance dependency of these Florida specialists, with ceded reinsurance leverage at 514.7 percent, compared to the A.M. Best personal property composite average of 59.1 percent. Some insurers strategically use reinsurance arrangements to generate income through ceding commissions, but a high dependency can indicate greater sensitivity to changes in reinsurance pricing and availability.

The report also discusses the exit of insurers from Florida, contributing to the growth of Citizens Property Insurance Corporation. Citizens has more than doubled its policy counts in the last 2 years, reaching over 1.4 million in September 2023. "With such exposure, a major loss event in the most hurricane-prone state may deplete Citizens' surplus and strain its financial stability, which could have a widespread market impact if severe enough," said Christopher Draghi, director, A.M. Best.

Copyright © 2024 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.