Florida risks primary carrier flinch or flight as reforms flounder: Fitch

Florida may end up pushing more insurers to exit the market with a too-little-too-late legislative initiative that could force primary carriers to address reinsurance shortfalls with reduced capacity of their own.

Florida had hoped to get the upper hand on the mid-year reinsurance renewals season with a last-minute special legislative session intended to first hack away at the incentives for litigation that cripple the industry and then dangle some reinsurance welfare in front of insurers willing to hold rates down.

“What we’ve seen in the last few months might continue: … either non-renewals by the thousands at a time or no new business,” an insurance group director at the  Fitch ratings agency, Christopher Grimes, told Intelligent Insurer of the likely industry response if a strained renewals season leaves primary carriers short of their goals.

Symptoms of stress had gripped the market going into the renewals season. Cases of carriers filing “extreme rate increases” above 20% were aplenty and the burden on the state insurer of last resort, CPIC, remained clearly on the rise.

“Across the state, rates are in an area where carriers just need more,” Grimes said. CPIC had said that state-wide actuarial indications pointed to a 36.5% rate increase, way above its statutory cap. “We’ve seen a lot of carriers pulling back – more than half a dozen said that or that they are non-renewing.”

Going into the season, Progressive had made arguably the biggest waves with announcements of a roll-out of policy non-renewals. By some measures, matters have only accelerated.

Southern Fidelity Insurance and People’s Trust Insurance reportedly filed their suspension and non-renewal notifications in the very wake of the legislative initiative. That’s not even to mention the carrier liquidations.

Reinsurers read the writing on the wall well ahead of time, with early announcements of capacity reductions. Such major names as Munich Re and Swiss Re had driven the point home with contrasting declarations of rising nat cat appetite, but declining interest in Florida.

With Florida legislators offering a mixed track record at best on legislative initiatives in 2019 and 2021, insurers and reinsurers had plenty of reason to be sceptical.

“The general consensus is that it might not be enough,” Grimes said of his read from the chatter amongst market insiders. Actual progress in disincentivizing collusion between the lawyers and contractors “may not have gone far enough” and would likely need 12 to 18 months anyway just to prove its credibility. Early legal challenges to the new law suggest impact is delayed at best.

And state-crafted reinsurance offers appear to fly in the face of rate inadequacy, given the demands that savings be handed back to policyholders.

Amidst forecasts for bloodshed in an extended battle, some major players on the Florida market were quick to declare their victories at the traditional June 1 deadline. But eyes are likely elsewhere on a market that has been liquidating firms on the margin.

Florida-based P&C carrier Heritage Insurance bragged of meeting the June 1 deadline for its “comprehensive” catastrophe XoL programme. Heritage credited its ability to diversify out of Florida and noted its programme includes its first Citrus Re cat bond issued since 2017. Universal likewise ballyhooed its renewals prowess in a multi-faceted structure costing approximately 38% of estimated direct premiums earned.

Eyes will be on more challenged players as the market likely continues to separate the wheat from the chaff in the industry. Renewals could extend “a week or two” into June before the dust settles for the full field of primaries seeking reinsurance backstops.

“This year’s renewals will continue that path of differentiation between cedents,” Grimes told Intelligent Insurer.  “It will be more expensive this year for everybody, but certainly those that have had a tougher experience in the last few years are going to find it more difficult to find acceptable rate, if they can find it a t all.” For the broader renewals season, Fitch walked in expecting reinsurance rate increases in a range of 10 to 30%.

The most likely industry response: start plotting your reductions in coverage or “manage it on the front end, before [you] start transferring it to reinsurers.” Primary carriers don’t need to have slowed appetite and announced non-renewals by the 6.1 deadline, but best be credibly telling reinsurers of such plans. Considerably less is to be expected from attempts to restructure and rejig structures.

“No need for a rush,” Grimes said, “just to demonstrate to the reinsurers that your portfolio is being managed in a different way which is potentially better from a loss cost point of vow … a constant dialogue what you are doing to manage your accumulations.”

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