Hurricane Ian could worsen reinsurance capacity crisis for insurers: Fitch

Hurricane Ian, which made landfall on Florida’s Gulf Coast, is expected to generate substantial economic and insured losses – but it is not likely to affect credit for rated property/casualty (P&C) re/insurers given ample capital levels and the ability to increase premium rates, analysts at  Fitch Ratings have said. The event, however, is expected to worsen the reinsurance capacity crisis for insurers, potentially causing the exit of more Florida specialist companies.

However, it also noted that Florida insurance specialists that are unrated by Fitch have suffered financial losses and diminished capital in recent years remain vulnerable to large catastrophic events that generate losses in excess of reinsurance limits.

Florida is expected to have substantial economic and insured losses from hurricane Ian from heavy rainfall, storm surge and flooding. Based on its initial analysis, Fitch suggests insured losses could range from $25 billion-$40 billion for Florida, which could increase depending on the effect of the storm in the Carolinas.

This compares to Hurricane Katrina’s $65 billion in 2005, winter storm Uri - $15 billion in 2021 and Hurricane Ida - $36 billion in 2021.

Most large national underwriters do not have substantial market share in Florida and have cut policies in force via non-renewals to manage balance sheet exposure and cost of their reinsurance programs.

Citizens Property Insurance Corporation, which has leading market share in both personal and commercial lines, continues to increase exposure from expansion of policies in force and by assuming business from other Florida specialists.

Despite having the capacity to absorb losses from this event, strain on Citizens and its continued growth adds to the vulnerability of the insurance market to the next catastrophic event, Fitch warned. Citizens has stated that Ian will be a reinsurance loss event to the Florida Hurricane Catastrophe Fund, but not a significant event for its private market reinsurers.

Fitch highlighted that many insurers providing property coverage in the state experienced severe downturns in underwriting performance and capitalisation levels in recent years despite no hurricane hitting the state since 2018. This trend has forced a number of smaller insurers into liquidation, exacerbating the challenges for policyholders of finding private market homeowners insurance coverage.

Ian is expected to worsen the reinsurance capacity crisis for insurers, potentially causing the exit of more Florida specialist companies, it said.

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