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    • Experts say Florida’s insurance market may face another hurricane this year
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    Experts say Florida’s insurance market may face another hurricane this year

    Mars Posted on

    Ron Hurtibise
    | South Florida Solar Sentinel

    Despite warnings from two major insurance rating agencies that Hurricane Milton has weakened or threatened Florida’s struggling home insurance market, local experts say the market can handle the losses caused by Milton and are ready to cover another hurricane, should it occur.

    AM Best and Fitch Ratings each issued reports last week warning that Milton could stretch the liquidity of Florida-based insurers that focus primarily on protecting the state’s homeowners.

    “Hurricane Milton poses a significant threat to Florida property insurers concentrated in the state, which lack diversification and are therefore extremely vulnerable to significant catastrophic events,” AM Best said in a press release promoting from a report published before Milton struck Florida on October 9.

    Fitch Ratings said: “The precarious position of Florida’s home insurance market will further weaken with the destruction generated by Milton. » This has raised concerns that Florida insurers rely on reinsurance – insurance they buy on the global market to ensure they can pay all claims during active hurricane seasons. And he also said that they have low levels of surplus and that they are concentrating their operations in Florida. These factors raise “questions about their ability to raise capital following large loss events,” it says.

    For years, critics have taken a dim view of Florida-based insurers’ heavy reliance on reinsurance rather than surplus to remain viable.

    But experts closer to Florida’s insurance industry question the claims of AM Best and Fitch Ratings. One reason is that the two companies fail to evaluate most of Florida’s national insurers whose financial strength they question, said Paul Handerhan, president of the Federal Association for Insurance Reform, based in Fort Lauderdale and focused on the consumer.

    “AM Best and Fitch therefore do not have direct access to their reinsurance programs or financial data,” Handerhan said.

    While cautioning that loss estimates have not yet been released by catastrophe modeler Karen Clark and Company, Florida experts said the state’s insurers have enough reinsurance capital to withstand not only Hurricanes Milton, Helene and Debby, but also another Milton-sized storm if it occurs late in the 2024 storm season.

    Karen Clark, president of the catastrophe modeling company that bears her name, said that “Florida insurers and the reinsurers who protect them use sophisticated tools to understand the probabilities of losses from hurricanes of different sizes.” The Florida Office of Insurance Regulation, she said, requires insurers to respond to storms with a 1 in 130 year probability of occurrence, “which would represent a much greater loss to the industry than caused by Milton.

    She added: “The losses caused by Hurricane Milton should therefore not come as a surprise, and the event should not have any negative effects on the health of the market. »

    Joe Petrelli, president of Demotech, the only rating company that examines the financial health of most Florida-based property insurers, said insurers can purchase additional reinsurance capacity if they use what they purchased to get through the year.

    “Carriers will have catastrophe reinsurance in place for another event, so this shouldn’t be a problem,” Petrelli said.

    Florida’s insurance regulators will make sure of that, he said. “I am certain that the Florida Office of Insurance Regulation has inquired or is currently inquiring about the remaining and available catastrophe reinsurance protection,” he said.

    Officials with the Florida Office of Insurance Regulatory did not immediately respond to the South Florida Sun Sentinel’s request to respond to the AM Best and Fitch Ratings reports.

    Handerhan said in June that businesses needed to have enough reinsurance to reimburse losses from two major storms. A second major storm, he said, would force many people to purchase additional reinsurance in the middle of the season to ensure they have enough capital to cover a third major storm.

    Handerhan said most companies have reinsurance coverage for the third and fourth hurricanes this year. And, despite Helen’s size, he expressed doubt that the state had weathered two major storms.

    Hurricanes Debby and Helene “either impacted rural areas of Florida or were primarily flooding,” he said. Property insurers do not cover damage resulting from storm surges caused by hurricanes.

    Many companies will be forced to dip into their reinsurance coverage to pay for damage to Milton, which Fitch Ratings estimates would cost insurers between $30 billion and $50 billion, Handerhan said. But Helen and Debbie did not cause insured losses high enough to allow them to accept reinsurance payments, leaving them available for another event, he said.

    “I don’t see any risk of insolvency on the immediate horizon.” he said.

    Still, the idea of ​​Florida-based insurers becoming insolvent isn’t exactly far-fetched these days.

    Nine companies filed for bankruptcy between 2021 and 2023. Most were impacted by loss of surplus from previous hurricanes, excessive non-weather-related claims, and resulting litigation.

    While state law prevents its insolvency, the state-owned Citizens Property Insurance Corp. came close to imposing surcharges on Florida insurance consumers last year.

    Due to payments caused by Hurricane Ian in 2022, the company’s personal insurance account surplus had fallen to $420 million – the expected payout for a storm that occurs every four years. If claims from a single storm had topped $420 million, the company would have had to collect $770 million from its own customers and another $729 million from nearly every insurer customer in the state.

    Citizens solved the problem this year by consolidating three industries into one and devoting their entire $6.6 billion surplus to it. That means Citizens would have to spend $14.1 billion – including the surplus, Hurricane Catastrophe Fund coverage and private market reinsurance this year before rating policyholders.

    “I can say that Citizens is in a strong financial position and has the financial resources to manage claims related to Hurricanes Milton and Helene without the need for an emergency surcharge or assessment,” the spokesperson said Friday. – Citizens spokesperson, Michael Peltier.

    Fitch Ratings said in its report that Milton could take the global industry’s insured losses for 2024 to more than $100 million for the fifth consecutive year and limit the risk that reinsurance rates fall again as they have. made at the start of the current hurricane season.

    The ultimate losses in Milton and any additional disasters that await this year, the report said, could lead to a “hardening” of premiums – which is insurance jargon, meaning costs for policyholders could increase.

    Locke Burt, CEO and president of Security First Insurance, says premiums will increase for policyholders next year no matter what. Indeed, inflation will continue to increase the price of building materials and the costs of labor needed to repair damaged homes.

    As for reinsurance rates, Burt says, “No one knows what’s going to happen because no one knows yet how much Milton is going to cost, or if there’s going to be a Milton No. 2, or what’s going to happen in the rest of the world with earthquakes in Japan, forest fires in California or floods in Germany.

    “The price of reinsurance depends on global supply and demand, and right now there is a good amount of supply and pretty good demand.”

    Mars
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